Analysis of World Export vs. Domestic Hot Rolled Coil Prices

Before we begin with our calculation, SMU wants to point out that there is a large disparity between the theoretical calculation show using SteelBenchmarker world export numbers and that of actual foreign offers into the U.S. market. We are of the opinion that the SteelBenchmarker numbers are dated and are not taking into full consideration the volatility in this quickly moving world of ever higher steel numbers. A good example being Chinese billet, which should sell below hot rolled coil, was last being offered to Turkey at $400 per metric ton.

The world export price for hot rolled bands is $336 per net ton ($370 per metric ton) FOB the port of export according to data released by SteelBenchmarker earlier this week. This is up $45 from the previous release on March 28th and up $65 per ton compared to the mid-March price.

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 the “theoretical” selling price for hot rolled coil exported to the United States as ranging from $406 to $436 per ton CIF USA Port.

The latest Steel Market Update hot rolled price average is $490 per ton for domestic steel, up $50 per ton compared to the last time we did an update on world prices and up $60 per ton over our mid-March price. The theoretical spread between the world HR export price and the SMU HR price is $54 to $84 per ton ($154 prior to import costs), up $5 from our previous analysis but down $5 from mid-March.

The $54 to $84 spread is in line with the average spread we have seen over the last few months. Our spread back in early February of $63 to $93 per ton was the highest spread seen since late-November 2014 when the spread was $66 to $96 per ton ($166 prior to import costs). This time last year, in January through May, we had more narrow spreads, some negative (meaning theoretically that domestic steel was cheaper than foreign steel); this time last year, it was -$14 to $16 ($86 prior to import costs). In early February 2015 the spread was -$19 to $11 ($81 prior to import costs),  the lowest seen since late-May 2013. The widest spread seen between foreign and domestic HRC in 2015 was in mid-August at $42 to $72 per ton ($142 prior to import costs).

SMU believes that at this time the SteelBenchmarker world export prices are understated by $20 to $40 per metric ton as prices in China and Europe have been surging. We did a quick check and found Turkish hot rolled sold about a week ago into the United States at $485 per ton, CIF Duty Paid. The spread on that material against current domestic prices is minimal. This is what we are hearing from steel buyers who report foreign prices as being very close to domestic quotes making foreign less attractive except in those areas where there is a large freight advantage.

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.

Below is a graph comparing 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 view the graph on our website to use it’s interactive features, you can do so by clicking here. If you need assistance with either logging in or navigating the website, please contact us at 800-432-3475 or info@SteelMarketUpdate.com.