Analysis of Foreign vs. Domestic Hot Rolled Coil Prices

SMU uses the Platts foreign HRC prices referenced above and then we add $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, November 17) Platts published European HRC prices is referenced as being $495 per net ton ($485 Euros per metric ton), up $21 from two weeks ago and up $31 from one month ago. Calculating in $90 per ton for import costs, that puts prices at $585 per net ton from Europe delivered to the US. The latest Steel Market Update hot rolled price average is $540 per ton for domestic steel, up $70 per ton compared to the last time we did an update on world prices and up $50 per ton over our mid-October price. This puts the theoretical spread between European and US HR prices at -$45 per ton, following a -$94 per ton spread two weeks ago and a -$64 per ton spread one month ago. This means that currently US sourced HR is theoretically $45 per ton cheaper to buy than getting HR steel imported from Europe.

Chinese HRC prices were reported at $402 per net ton ($443 per metric ton), up $32 from two weeks ago and up $59 from one month ago. Using the Platts price and adding $90 in estimated import costs, that puts prices around $492 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 +$48 per ton, up from +$10 per ton two weeks ago but down from +$57 per ton one month ago. Meaning that if Chinese HR were able to be shipped to the US, it would be $48 per ton cheaper than buying domestic steel.

Platts published Turkish export prices at $426 per net ton FOB Turkish port ($470 per metric ton), up $27 from two weeks ago and up $40 from one month ago. Adding $90 in import costs, the Turkish HRC “to the US ports” price is $516 per ton. This puts the theoretical spread between the Turkish and US HR price at +$24 per ton, up from -$19 per ton two weeks ago and up from +$14 per ton one month ago. This means that HR from the US is theoretically now $24 per ton more expensive 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…

So, the first question that should be in your mind is, “Are foreign HRC offers being made into the USA right now?” The answer is essentially no; there is very little HRC being offered into the U.S. One very large HRC service center told us when asked that question, “None. If you consider indications then maybe some Italian but that too is not to be counted on.”

SteelBenchmarker World Export Price

The SteelBenchmarker world export price for hot rolled bands is $406 per net ton ($448 per metric ton) FOB the port of export according to data released by SteelBenchmarker on Monday November 14th. This is up $28 per ton from the previous release on October 24th and up $44 per ton over the October 10th release. Adding in $90 in estimated import costs, that puts prices around $496 per ton delivered to the US.

Therefore, the theoretical spread between the SteelBenchmarker world HR export price and the SMU HR price is +$44 per ton, meaning foreign steel imported into the US is theoretically now $44 per ton cheaper than domestic steel. This spread is up from +$2 from our previous analysis and down from +$38 in mid-October. 

This $44 spread is about $45 per ton lower than the average spread we have seen over the last few months. This past summer, 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 $31 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.