Analysis of World Export vs. Domestic Hot Rolled Coil Prices

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.

SteelBenchmarker World Export Price vs. Domestic

The world export price for hot rolled bands is $328 per net ton ($362 per metric ton) FOB the port of export according to data released by SteelBenchmarker earlier this week. This is down $48 from the previous release on June 13th and down $59 per ton over the May 23rd update.

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 $398 to $428 per ton CIF USA Port. (SMU will note here that we are not seeing any offers for hot rolled at this “theoretical” numbers. To us this means one of two things, 1) the SteelBenchmarker number is inaccurate or too focused on Chinese numbers and not the rest of the world or, 2) due to the dumping suits foreign steel providers are not willing to ship steel to the U.S. at this time.)

The latest Steel Market Update hot rolled price average is $627.50 per ton for domestic steel, down $7.50 per ton compared to the last time we did an update on world prices and down $2.50 per ton over our late-May price. The theoretical spread between the world HR export price and the SMU HR price is $200 to $230 per ton ($300 prior to import costs), up $41 from our previous analysis and up $57 from late-May.

The $200 to $230 spread is between $90 and $110 per ton higher than the average spread we have seen over the last few months. Surpassing the previous record highs seen over the last two months, this is now the highest spread we have seen 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 $26 to $56 ($126 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).

Platts European HRC (Ruhr) & Chinese HRC vs. Domestic

Earlier this week Platts published European HRC prices (Ruhr) at $428 per net ton ($472 per metric ton), and Chinese HRC at $347 per net ton ($382 per metric ton). Calculating in $70 to $100 per ton for freight and trader margins, that puts prices around $498 to $528 per net ton from Europe delivered to the US and $417 to $447 per ton from China (if China were able to ship to the United States which they are not).

SMU did a quick check of buyers to see what HRC offers there are out there right now and at what price levels. We learned that the prices range from a low if $550 per ton to as high as $595 per ton, FOB Houston. That shrinks the spread to $77.50 per ton to $32.50 per ton (FOB Houston vs. FOB Mill). At these levels, and with there being a question mark as to what direction domestic prices will be headed come 4th Quarter (when foreign would arrive) buyers have much to think about.

However, all the “theoretical” calculations do not mean anything if there is little to no hot rolled coils being offered into the United States. At this time that is exactly what we are seeing: little to no offers of HRC to the U.S. market. 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.