Analysis of Foreign vs. Domestic Hot Rolled Coil Prices

We want to make sure that our readers are aware that Chinese hot rolled is not available to the U.S. market so the Chinese spread is nothing more than an exercise of what if…

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 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), unchanged from two weeks ago and up $11 from one month ago. Platts published Chinese HRC prices at $333 per net ton ($367.50 per metric ton), down $45.50 from two weeks ago and down $66.50 from one month ago. Calculating in $90 per ton for import costs, that puts prices around $544 per net ton from Europe delivered to the US and $423 per ton from China (if China were able to ship to the United States, which they are not).

Platts also published Turkish export prices as being $376 per net ton FOB Turkish port. Adding $90 in cost to move the product, trader margin, etc. this hypothetically puts Turkish HRC at $466 per ton.

The latest Steel Market Update hot rolled price average is $510 per ton for domestic steel, down $15 per ton compared to the last time we did an update on world prices and down $80 per ton over our mid-August price. This puts the theoretical spread between the European HR export price and the SMU HR price at -$34 per ton, follow a -$19 per ton spread two weeks ago and a $57 per ton spread one month ago. This means that US HR is theoretically $34 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 $87 per ton, up from $60 per ton two weeks ago but down from $106 per ton one month ago.

In the case of our Turkish hypothetical, the spread would be $47 per ton (Turkish being less expensive). We did check with one of the Turkish traders today and were advised not all the mills are offering at the moment but those that were are in the $450-$470 per ton area.

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 compare 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 26th. This is unchanged from the previous release on September 12th and up $5 per ton over the August 22nd price update.

Therefore, the theoretical spread between the SteelBenchmarker world HR export price and the SMU HR price is $74 per ton ($164 prior to import costs), meaning foreign steel imported into the US is theoretically $74 per ton cheaper than domestic steel. This spread is down $15 from our previous analysis and down $85 from mid-August. 

This $74 spread is about $100 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 $70 per ton cheaper than foreign steel). This time last year, the spread was $46 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.