Analysis of Foreign vs. Domestic Hot Rolled Coil Prices

SMU uses the Platts European HRC price (FOB Ruhr) and the Chinese HRC price for this analysis, adding $90 per ton to these prices in consideration of freight costs, handling, trader margin, etc. This provides an approximate ‘to the US ports price’ that we then be compared against the SMU US hot rolled price average (FOB Mill), with the result being the spread (difference) between domestic and foreign 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.

Earlier this week Platts published European HRC prices (Ruhr) at $434 per net ton ($478 per metric ton), up $11 from two weeks ago and up $14 from one month ago. Platts published Chinese HRC prices at $394 per net ton ($434 per metric ton), up $20 from two weeks ago and up $29 from one month ago. Calculating in $90 per ton for import costs, that puts prices around $524 per net ton from Europe delivered to the US and $484 per ton from China (if China were able to ship to the United States, which they are not).

The latest Steel Market Update hot rolled price average is $590 per ton for domestic steel, down $10 per ton compared to the last time we did an update on world prices and down $25 per ton over our late-July price.This puts the theoretical spread between the European HR export price and the SMU HR price at $66 per ton, down from $87 per ton two weeks ago and $105 per ton on month ago. The theoretical spread between the Chinese HR export price and the SMU HR price is $106 per ton, down from $136 per ton two weeks ago and $160 per ton on month ago.

Please note that this is a “theoretical” calculation as freight costs, trader margin and other costs can fluctuate ultimately influencing the true market spread. And again, the Chinese spread is nothing more than an exercise of what if…

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 $341 per net ton ($376 per metric ton) FOB the port of export according to data released by SteelBenchmarker on Monday August 22nd. This is up $8 from the previous release on August 8th and up $11 per ton over the July 25th update.

Therefore, the theoretical spread between the SteelBenchmarker world HR export price and the SMU HR price is $159 per ton ($249 prior to import costs), meaning foreign steel imported into the US is currently cheaper than domestic steel. This spread is down $18 from our previous analysis and down $36 from late-July. 

This $159 spread is about $30 per ton lower than the average spread we have seen over the last few months. Just last month we had record high spreads, 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 $52 per ton.

With Chinese hot rolled trading close to $400 per net ton we are questioning the validity of the world export as referenced by SteelBenchmarker.

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.