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 $454 per net ton ($445 Euros per metric ton), up $11 from two weeks ago and up $22 from one month ago. Platts published Chinese HRC prices at $375 per net ton ($413 per metric ton), down $19 from two weeks ago but up $1 from one month ago. Calculating in $90 per ton for import costs, that puts prices around $514 per net ton from Europe delivered to the US and $465 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 $525 per ton for domestic steel, down $65 per ton compared to the last time we did an update on world prices and down $75 per ton over our early-August price.This puts the theoretical spread between the European HR export price and the SMU HR price at -$19 per ton, down from $57 per ton two weeks ago and $78 per ton on month ago. This means that US HR is theoretically $19 per ton cheaper to buy than getting HR steel imported from Europe. The theoretical spread between the Chinese HR export price and the SMU HR price is $60 per ton, down from $106 per ton two weeks ago and $136 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…

We checked for actual foreign hot rolled offers into the U.S. market and found Mexican and European offers under $500 per ton (as low as $480 per ton). The highest foreign offer we heard was a bit dated (two weeks old) at $540 per ton out of a Korean mill. We spoke to a couple service center buyers who told us these latest offers were not attractive in light of what has been happening with domestic mill prices dropping.

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 $346 per net ton ($381 per metric ton) FOB the port of export according to data released by SteelBenchmarker on Monday September 12th. This is up $5 from the previous release on August 22nd and up $13 per ton over the August 8th update.

Therefore, the theoretical spread between the SteelBenchmarker world HR export price and the SMU HR price is $89 per ton ($179 prior to import costs), meaning foreign steel imported into the US is theoretically cheaper than domestic steel. This spread is down $70 from our previous analysis and down $88 from early-August. 

This $89 spread is about $85 to $95 per ton lower than the average spread we have seen over the last few months. Just two months ago, 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 $48 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.