Analysis of World Export vs. Domestic Hot Rolled Coil Prices

The world export price for hot rolled bands is $410 per net ton ($452 per metric ton) FOB the port of export according to data released by SteelBenchmarker earlier this week. This is up $16 from the previous release on April 25th and up $74 per ton compared to the mid-April price.

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 $480 to $510 per ton CIF USA Port.

The latest Steel Market Update hot rolled price average is $610 per ton for domestic steel, up $80 per ton compared to the last time we did an update on world prices and up $120 per ton over our mid-April price. The theoretical spread between the world HR export price and the SMU HR price is $100 to $130 per ton ($200 prior to import costs), up $64 from our previous analysis and up $46 from mid-April.

The $100 to $130 spread is about $50 per ton higher than the average spread we have seen over the last few months. This is the highest spread in our 3+ year history, with the next highest spread being in mid-May 2014 at $84 to $114 per ton ($184 prior to import costs). In January through May of last year, we had more narrow spreads, some negative (meaning theoretically that domestic steel was cheaper than foreign steel). This time last year, it was $22 to $52 ($122 prior to import costs), and in early February 2015, the spread was -$19 to $11 ($81 prior to import costs), the lowest seen since late-May 2013. The widest spread seen between foreign and domestic HRC in 2015 was in mid-August at $42 to $72 per ton ($142 prior to import costs).

Steel Market Update has been canvassing the international spot markets to see where hot rolled coil can be bought and delivered to a USA port. Earlier this week Platts published FOB China HRC at $359 per net ton ($396 per metric ton), Antwerp (Europe) at $390 per net ton ($430 per metric ton), and Black Sea at $445 per net ton ($490 per metric ton). Calculating in $70 to $100 per ton for freight and trader margins, that puts prices at $429-459 per net ton delivered from China (if it were able to be shipped to the U.S. market which it is not), $466-496 per net ton delivered from Antwerp, and $460-490 per net ton delivered from the Black Sea.

However, all the “theoretical” calculations do not mean anything if there is little to no hot rolled coils being offered into the United States. Many foreign mills are not offering or, are offering at numbers much higher than what we have “theoretically” suggested above. This is due to stronger international business, the U.S. market being protected through the use of dumping suits and the desire to collect higher margins when possible.

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.