Analysis of European Export vs. Domestic Hot Rolled Coil Prices

SMU uses the Platts European price (FOB Ruhr) and then adds additional costs which take into consideration freight, handling, trader margin, etc. We have had a number of readers request that we simplify the numbers used, so going forward we are going to use a flat $90 per ton in costs which will be added to the Platts Ruhr number. This will provide an approximate number which can then be compared against the SMU US hot rolled price average (FOB Mill), with the result being the spread (difference) between domestic and European hot rolled prices. As the spread narrows, the competitiveness of imported steel into the United States is reduced. If it widens, then foreign steel becomes more attractive to U.S. flat rolled steel buyers.

Late last week Platts published European HRC prices (Ruhr) at $420 per net ton ($463 per metric ton), and Chinese HRC at $365 per net ton ($402 per metric ton). Calculating in $90 per ton for import costs, that puts prices around $510 per net ton from Europe delivered to the US and $455 per ton from China (if China were able to ship to the United States, which they are not).

Please note that this is a “theoretical” calculation as freight costs, trader margin and other costs can fluctuate ultimately influencing the true market spread.

Based on our last analysis of available hot rolled quotes we were seeing numbers from a low of $490 per ton to as much as $540 per ton CIF, Duty Paid, Gulf (lowest price) or East Coast Port (highest price). Foreign HRC numbers need to be at least $60 per ton (including freight considerations) in order to entice buyers to move away from domestic steel. With the domestic HRC average being $615 per ton the spread ranges from a high of $125 per ton to $75 per ton before taking freight into consideration.

SteelBenchmarker World Export Price

When we use the export price produced by SteelBenchmarker and add additional import costs in consideration of freight, handling, trader margin, etc., and then compared the number generated to the SMU US hot rolled price average (FOB mill), the resulting number is the approximate spread between domestic and world hot rolled coil prices. The world export price for hot rolled bands is $330 per net ton ($364 per metric ton) FOB the port of export according to data released by SteelBenchmarker on Monday July 25th. This is down $1 from the previous release on July 11th but up $2 per ton over the June 27th update.

The latest Steel Market Update hot rolled price average is $615 per ton for domestic steel, down $10 per ton compared to the last time we did an update on world prices and down $12.50 per ton over our late-June price.

Therefore, the theoretical spread between the SteelBenchmarker world HR export price and the SMU HR price is $195 per ton ($285 prior to import costs), meaning foreign steel imported into the US is currently cheaper than domestic steel. This spread is down $9 from our previous analysis and down $15 from late-June. 

This $195 spread is about $40 per ton higher than the average spread we have seen over the last few months. This is the third highest spread recorded by SMU, with the June 27th 2016 spread of $210 being the record high in our 7+ year recorded history, and the July 14th 2016 spread of $204 being the second highest. Prior to 2016, the previous highest spread was $94 in May 2014. The lowest spread in our history was -$70 in August 2011 (meaning domestic steel was theoretically cheaper than foreign steel). This time last year, the spread was $33 per ton.

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 SteelBenchmarker world HR export prices against the SMU domestic HR average price (we will build new data using Platts and replace the SteelBenchmarker data in the months ahead). 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.