Spread Between Foreign & Domestic HR Prices Shrinks

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), Turkey HRC price, 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.

As of today (Thursday, October 13) Platts published European HRC prices (Ruhr) is referenced as being $464 per net ton ($455 Euros per metric ton), up $10 from both two weeks ago and one month ago. Calculating in $90 per ton for import costs, that puts prices at $554 per net ton from Europe delivered to the US. The latest Steel Market Update hot rolled price average is $490 per ton for domestic steel, down $20 per ton compared to the last time we did an update on world prices and down $35 per ton over our mid-September price. This puts the theoretical spread between European and US HR prices at -$64 per ton, following a -$34 per ton spread two weeks ago and a -$19 per ton spread one month ago. This means that US HR is theoretically $64 per ton cheaper to buy than getting HR steel imported from Europe.

Chinese HRC prices were reported at $343 per net ton ($378 per metric ton), up $10 from two weeks ago but down $32 from one month ago. Adding in $90 in estimated import costs, that puts prices around $433 per ton delivered from China (if China were able to ship to the United States, which they are not). The theoretical spread between the Chinese and US HR price is $57 per ton, down from $87 per ton two weeks ago and down from $60 per ton one month ago. 

Platts published Turkish export prices at $386 per net ton FOB Turkish port ($425 per metric ton). Adding $90 in import costs, the Turkish HRC “to the US ports” price is $476 per ton. This puts the theoretical spread between the Turkish and US HR price at $14 per ton, down from $44 per ton two weeks ago and down from $63 per ton one month ago. This means that US HR is theoretically now $14 per ton more expensive to buy than getting HR steel imported from Turkey.

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

The SteelBenchmarker world export price for hot rolled bands is $362 per net ton ($399 per metric ton) FOB the port of export according to data released by SteelBenchmarker on Monday October 10th. This is up $16 per ton from the previous release on September 26th and also up $16 per ton over the September 12th release.

Therefore, the theoretical spread between the SteelBenchmarker world HR export price and the SMU HR price is $38 per ton ($128 prior to import costs), meaning foreign steel imported into the US is theoretically now $38 per ton cheaper than domestic steel. This spread is down $36 from our previous analysis and down $51 from mid-September. 

This $38 spread is about $100-120 per ton lower than the average spread we have seen over the last few months. Just three 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 $39 per ton.

SMU did a quick review of what we could find for foreign hot rolled import offers. What we found were offers out of Mexico in the $420+ range and Northern European at $480 per ton FOB USA Port. The Northern European offer is generating little to no interest.

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.