Analysis of World Export vs. Domestic Hot Rolled Coil Price Spread

The world export price for hot rolled bands is $362 per net ton ($399 per metric ton) FOB the port of export according to data released by SteelBenchmarker earlier this week. This is down $14 per ton from the previous release in late-March and down $20 per ton from one month ago.

SMU uses a minimum of $70 to as much as $100 per ton for freight, handling, and trader margin, which is then added to the export number in order to get the steel to ports in the United States. This puts our “theoretical” selling price for hot rolled coil exported to the United States as ranging from $432 to $462 per ton CIF USA Port.

The latest Steel Market Update hot rolled price average is $447.50 per ton for domestic steel; this is down $22.50 from late-March and down $32.50 per ton from one month ago. The theoretical spread between the world HR export price and the SMU HR price is -$14 to $16 per ton ($86 prior to import costs), down $8 per ton from our previous analysis and down $12 from one month ago.

In our analysis, a positive price spread indicates foreign HR steel is cheaper than domestic steel, and a negative spread indicates that foreign steel is more expensive than domestic.

The -$14 to $16 spread is in line with the lower spreads we have seen over the past three months. The spread in early February of -$19 to $11 was the lowest seen since late-May 2013 when we had a spread of -$20 to $10 per ton ($80 prior to import costs). In 2014, the highest spread seen was in mid-May at $84 to $114 per ton ($184 prior to import costs). One year ago the spread was $70 to $100 per ton ($170 prior to import costs).

The above numbers are based on “theoretical” calculations. This is where we believe prices and price offers should be if the SteelBenchmarker world export number is correct.

Latest Offers Seen & Price Comparison:

However, we are constantly checking the market for actual price offers for foreign hot rolled coil into the United States. Earlier this week we found offers ranging from $400 per ton to as high as $430 per ton, CIF, Duty Paid either the port of entry or border crossing in the case of Mexican steel. With domestic hot rolled at $447.50 per ton (average) the spread is $17.50 per ton on the low side, which is not enough for a domestic buyer to purchase foreign steel without some other form of incentive (such as freight discussed below). On the high side the spread is $47.50 per ton which is margin for a domestic buyer to consider unless they are convinced prices will move higher before the material arrives.

One needs to remember that the $447.50 per ton is an average and the true comparison should be at the lower end of the range since foreign steel buyers tend to be tonnage buyers. The low end of our range this week was $435 per ton which changes the low end to $5 per ton and the high end to $35 per ton. Neither of which are on the surface that attractive to a domestic buyer without taking other factors such as freight, delivery date, quality of material and where they feel prices will be domestically once the material arrives.

Freight is an important part of the final determination on whether to import foreign steel or buy from a domestic mill supplier. Domestic prices are referenced as FOB the producing mill while foreign prices are FOB the Port (Houston, NOLA, Savannah, Los Angeles, Camden, etc.). Inland freight, from either a domestic mill or from the port, can dramatically impact the competitiveness of both domestic and foreign steel.

To put this into perspective we learned that there are foreign HRC offers delivered into Chicago at $430 per ton (unloaded barge). If domestic prices, FOB Mill are $447.50 per ton then there is only a $17.50 per ton difference before taking into consideration freight, delivery, etc. as noted above.

Below is an interactive graph which you can use to compare world HR export prices against the SMU domestic HR average price. We also have included a comparison with freight and traders’ costs added which gives you a better indication of the true price spread. You will need to read this article on our website in order to see and interact with the graphic. If you need assistance with either logging in or navigating the website, please contact our office at 800-432-3475 or info@SteelMarketUpdate.com.

{amchart id=”130″ Domestic vs. Foreign Hot Rolled Pricing- Steel Benchmarker World China Europe Prices}