International Steel Prices

Price Spread Between World & Domestic HRC Narrows

Written by Brett Linton


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 as published 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 ultimately influencing the true market spread.

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 $267 per net ton ($294 per metric ton) FOB the port of export according to data released by SteelBenchmarker earlier this week. This is down $14 per ton from the previous release and down $27 from late-September.

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 the “theoretical” selling price for hot rolled coil exported to the United States as ranging from $337 to $367 per ton CIF USA Port.

The latest Steel Market Update hot rolled price average is $390 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 late-September. The theoretical spread between the world HR export price and the SMU HR price is $23 to $53 per ton ($123 prior to import costs), down $6 from our previous analysis and down $13 from late-September.

The $23 to $53 spread is $10 to $15 per ton less than what we have seen over the last few months. Earlier this year we had narrow spreads, some negative (meaning theoretically 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 widest spread seen between foreign and domestic HRC was in mid-May at $84 to $114 per ton ($184 prior to import costs). One year ago the spread was $47 to $77 per ton ($147 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.). 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 us at 800-432-3475 or info@SteelMarketUpdate.com.

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