World Export vs. Domestic Hot Rolled Coil Price Spread Shrinking

The world export price for hot rolled bands is $259 per net ton ($286 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 and down $22 from mid-October.

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 $329 to $359 per ton CIF USA Port.

In a quick channel check on hot rolled import offers into the Port of Houston the lowest price we heard was $320 per ton which is in line with the lower end of the range in our analysis.

The latest Steel Market Update hot rolled price average is $380 per ton for domestic steel, down $10 per ton compared to the last time we did an update on world prices and down $30 per ton over mid-October. The theoretical spread between the world HR export price and the SMU HR price is $21 to $51 per ton ($121 prior to import costs), down $2 from our previous analysis and down $8 from mid-October.

The $21 to $51 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 $65 to $95 per ton ($165 prior to import costs).

The rule of thumb is most buyers want at least a $40 to $60 per ton spread between foreign and domestic pricing before they feel comfortable buying foreign steel. In a market like we have seen over this past year, buyers may want the spread to be wider to take into consideration falling domestic prices and the lead time it could take for the foreign steel to arrive.

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.