Foreign vs. Domestic HR Price Comparison: Foreign Becoming More Attractive

SMU adds $90 per ton to these foreign prices taking into consideration freight costs, handling, trader margin, etc. This provides an approximate “CIF U.S. ports price” that can then be compared against the SMU U.S. 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. A positive spread means U.S. prices are theoretically higher than foreign prices, while a negative spread means U.S. prices are less than foreign prices.

As of Thursday, Dec. 14, Platts published European HRC prices were at $573 per net ton FOB Ruhr ($535.50 euros per metric ton), down $3 from two weeks ago and down $2 from mid-November. Adding in $90 per ton for import costs, that puts the price at $663 per net ton from Europe delivered to the U.S. The latest Steel Market Update hot rolled price average is $640 per ton for domestic steel, up $25 per ton from two weeks ago, and up $35 per ton over our mid-November price. This puts the theoretical spread between European and U.S. HR prices at -$23 per ton, which is tighter than the -$51 reported two weeks ago, and much tigher than the -$60 reported one month ago. This means that U.S.-sourced HR is now theoretically $23 per ton cheaper than getting HR steel imported from Europe. Although this price spread is not as attractive to U.S. steel buyers as the spreads seen in October and November, it remains advantageous for steel buyers to continue to pursue domestic sourcing options.

Chinese HRC prices were reported by Platts as being $514 per net ton ($567 per metric ton), up $18 from two weeks ago, and up $19 from one month ago. Adding $90 in estimated import costs puts Chinese HRC prices at $604 per ton delivered (if Chinese mills were able to ship to the United States, which they are not). The theoretical spread between the Chinese and U.S. HR price is +$36 per ton, up from +$29 per ton two weeks ago, and up from +$20 per ton one month ago. Meaning that if Chinese mills were able to ship HR to the U.S., it would cost $36 per ton less than buying steel produced domestically.

Platts published Turkish export prices at $499 per net ton FOB Turkish port ($550 per metric ton), up $5 from both two weeks ago and one month ago. Adding $90 in import costs, the Turkish HRC “to the U.S. ports” price is $589 per ton. This puts the theoretical spread between the Turkish and U.S. HR price at +$51 per ton, up from +$31 two weeks ago, and up from +$21 one month ago. This means that HR from the U.S. is theoretically $51 per ton more expensive than importing it from Turkey. The Turkey/U.S. price spread has been rising since mid-October 2017 when it dropped down to -$36 per ton (meaning domestic HR was $36 per ton cheaper than importing Turkish HR).

Freight and lead times are important factors when considering whether to buy foreign versus domestic steel. We discuss freight a little later in this article. When considering lead times, a buyer must take into consideration the momentum of pricing both domestically and in the world markets. If U.S. prices are rising, which they are at this time thus the shrinkage in the spreads, then one must consider when the steel is to be delivered versus what is available at a firm price from foreign sources. In most circumstances (but not all), domestic steel will deliver faster than foreign steel ordered on the same day.

Below is a graph comparing the Platts foreign HR export prices against the SMU domestic HR average price. You will need to view the graph on our website to use its 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

SteelBenchmarker World Export Price

The SteelBenchmarker world export price for hot rolled bands is $512 per net ton ($564 per metric ton) FOB the port of export, according to data released by SteelBenchmarker on Monday, Dec. 11. This is down $1 from the previous release on Nov. 27, and up $3 from one month ago. Adding in $90 in estimated import costs, that puts prices around $602 per ton delivered to the U.S. As previously mentioned, the latest Steel Market Update hot rolled price average is $640 per ton.

Therefore, the theoretical spread between the SteelBenchmarker world HR export price and the SMU HR price is +$38 per ton, meaning foreign HRC imported into the U.S. is theoretically now $38 per ton less expensive than steel purchased domestically. This price spread has been increasing for the past two months; it was down to -$27 in mid-October, rising to +$6 in November, then +$12 two weeks ago.

The +$38 spread is $20-30 per ton higher than the average spread seen over the last few months. In late-October, the spread was the lowest seen in 2017. This time last year, the spread was +$55 per ton, and continued to rise into late-2016 and remained high through the first half of 2017. The record high in our seven-year history was +$210 on June 27, 2016 (meaning domestic steel was theoretically $210 per ton more expensive than foreign steel), while the record low was -$70 in August 2011. The average spread for 2017 YTD continues to move lower; it is now +$49 per ton.

We want to again remind our readers that the calculations shown above are “theoretical,” but in most markets are probably a good indicator of where you can expect to find offers being made.

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 also have included a line with the world price including freight and traders’ costs, which gives you a better indication of the true price spread. You will need to view the graph on our website to use its interactive features; you can do so by clicking here.