Analysis of Foreign vs. Domestic Hot Rolled Coil Prices

SMU uses the Platts foreign HRC prices for this analysis and adds $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 27) Platts published European HRC prices is referenced as being $474 per net ton ($465 Euros per metric ton), up $10 from two weeks ago and up $20 from one month ago. Calculating in $90 per ton for import costs, that puts prices at $564 per net ton from Europe delivered to the US. The latest Steel Market Update hot rolled price average is $470 per ton for domestic steel, down $20 per ton compared to the last time we did an update on world prices and down $40 per ton over our late-September price. This puts the theoretical spread between European and US HR prices at -$94 per ton, following a -$64 per ton spread two weeks ago and a -$34 per ton spread one month ago. This means that US sourced HR is theoretically $94 per ton cheaper to buy than getting HR steel imported from Europe.

Chinese HRC prices were reported at $370 per net ton ($408 per metric ton), up $27 from two weeks ago and up $37 from one month ago. Another source quoted Chinese HR at $372 per net ton. Using the Platts price and adding $90 in estimated import costs, that puts prices around $460 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 +$10 per ton, down from +$57 per ton two weeks ago and down from +$87 per ton one month ago. Meaning that if Chinese HR were able to be shipped to the US, it would be $10 per ton cheaper than buying domestic steel.

Platts published Turkish export prices at $399 per net ton FOB Turkish port ($440 per metric ton), up $13 from two weeks ago and up $23 from one month ago. Adding $90 in import costs, the Turkish HRC “to the US ports” price is $489 per ton. This puts the theoretical spread between the Turkish and US HR price at -$19 per ton, down from +$14 per ton two weeks ago and down from +$44 per ton one month ago. This means that HR from the US is theoretically now $19 per ton cheaper than importing HR 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 $378 per net ton ($417 per metric ton) FOB the port of export according to data released by SteelBenchmarker on Monday October 24th. This is up $16 per ton from the previous release on October 10th and up $32 per ton over the September 26th release. Adding in $90 in estimated import costs, that puts prices around $468 per ton delivered to the US.

Therefore, the theoretical spread between the SteelBenchmarker world HR export price and the SMU HR price is +$2 per ton, meaning foreign steel imported into the US is theoretically now $2 per ton cheaper than domestic steel. This spread is down from +$38 from our previous analysis and down from +$74 in late-September. 

This $2 spread is about $120 per ton lower than the average spread we have seen over the last few months. Just four 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 $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.