International Steel Prices

Analysis of World Export vs. Domestic Hot Rolled Coil Price Spread

Written by Brett Linton


One of the key items Steel Market Update watches is the spread between world hot rolled export pricing and the HRC spot price average here in the United States. This spread is important to the domestic steel mills and their customers because as the spread narrows domestic steel becomes more competitive and their order books are easier to fill. With the second price increase announcement, now totaling $40 per ton, and international export prices falling, the spread between domestic and foreign steel is expected to widen. The exact amount of the change is related to the ability of the steel mills to collect the announced increases as well as to what the foreign steel price offers are for hot rolled coil imported into the U.S.

The following calculation is used by Steel Market Update to identify the spread between world hot rolled export prices as determined by SteelBenchmarker and domestic (US) hot rolled prices determined by SMU. Steel Market Update compares the world hot rolled export price to which dollars are added for freight, handling, trader margin, etc. The number generated is then compared to the spot (FOB Mill) domestic hot rolled price using the SMU Hot Rolled Index average for this week, with the result being the spread between domestic and world hot rolled coil prices. This is a ‘theoretical’ calculation as freight costs, trader margin and other costs can fluctuate.

This theoretical price spread analysis is based on our review of world export prices and the hot rolled steel price index produced by SMU earlier this week. 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.

The world export price for hot rolled bands is $339 per net ton ($374 per metric ton) FOB the port of export according to data released by SteelBenchmarker earlier this week. This is down $8 per ton from the previous release in early-June and down $6 per ton from one month ago.

SMU uses a minimum of $70 to as much as $100 per ton for freight, handling, and trader margin, which is then added to the export number in order to get the steel to ports in the United States. This puts our ‘theoretical’ selling price for hot rolled coil exported to the United States as ranging from $409 to $439 per ton CIF USA Port.

The latest Steel Market Update hot rolled price average is $465 per ton for domestic steel; this is up $5 from early-June and unchanged from one month ago. The theoretical spread between the world HR export price and the SMU HR price is $26 to $56 per ton ($126 prior to import costs), up $13 from our previous analysis and up $6 from one month ago.

The $26 to $56 spread is higher than what we have seen over the past few months. The last time the spread was this high was in mid-December 2014 with a spread of $45 to $75 per ton ($145 prior to import costs). Earlier this year we had lower spreads, some negative (meaning domestic steel was cheaper than foreign steel); in early February it was -$19 to $11 and was the lowest seen since late-May 2013. In 2014, the highest spread seen was in mid-May at $84 to $114 per ton ($184 prior to import costs). One year ago the spread was $56 to $86 per ton ($156 prior to import costs).

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.) or, in the case mentioned above, the Mexican border. 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 world HR export prices against the SMU domestic HR average price. 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 our office at 800-432-3475 or info@SteelMarketUpdate.com.

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