Analysis of Foreign vs. Domestic Hot Rolled Coil Price Spreads

SMU uses the Platts foreign HRC prices and then 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 can 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 price spread narrows, the competitiveness of imported steel into the United States is reduced. If the spread widens, then foreign steel becomes more attractive to U.S. flat rolled steel buyers.

As of today (Thursday, January 12th) Platts published European HRC prices is referenced as being $538 per net ton ($562.50 Euros per metric ton), up $5 from two weeks ago and up $5 from one month ago. Calculating in $90 per ton for import costs, that puts prices at $628 per net ton from Europe delivered to the US. The latest Steel Market Update hot rolled price average is $620 per ton for domestic steel, up $10 per ton compared to the last time we did an update on world prices on December 29th, and up $30 per ton over one month ago. This puts the theoretical spread between European and US HR prices at -$8 per ton, following a -$13 per ton spread two weeks ago, and a -$33 spread one month ago. This means that currently US sourced HR is theoretically $8 per ton cheaper to buy than getting HR steel imported from Europe.

Chinese HRC prices were reported at $451 per net ton ($498 per metric ton), down $9 from two weeks ago and down $9 over one month ago. Adding $90 in estimated import costs, that puts prices around $541 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 +$79 per ton, up from +$60 per ton two weeks ago and up from +$40 per ton one month ago. Meaning that if Chinese HR were able to be shipped to the US, it would be $79 per ton cheaper than buying domestic steel.

Platts published Turkish export prices at $467 per net ton FOB Turkish port ($515 per metric ton), down $9 over two weeks ago and down $9 from one month ago. Adding $90 in import costs, the Turkish HRC “to the US ports” price is $557 per ton. This puts the theoretical spread between the Turkish and US HR price at +$63 per ton, up from +$44 two weeks ago and up from +$24 one month ago. This means that HR from the US is theoretically $63 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…

SteelBenchmarker World Export Price

The SteelBenchmarker world export price for hot rolled bands is $474 per net ton ($522 per metric ton) FOB the port of export according to data released by SteelBenchmarker on Monday January 9th. This is up $7 per ton from the previous release on December 26th and up $29 from one month ago. Adding in $90 in estimated import costs, that puts prices around $564 per ton delivered to the US.

Therefore, the theoretical spread between the SteelBenchmarker world HR export price and the SMU HR price is +$56 per ton, meaning foreign steel imported into the US is theoretically now $56 per ton cheaper than domestic steel. This spread is up from +$53 from our previous analysis and up from +$55 one month ago. 

This $56 spread is about $10-20 per ton higher 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 $43 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.