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.
We will report what we are seeing for actual HRC offers into the U.S. right now and you can compare the theoretical calculation versus reality and we can all ponder on why the large variance between the two?
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 $331 per net ton ($365 per metric ton) FOB the port of export according to data released by SteelBenchmarker earlier this week. This is up $3 from the previous release on June 27th but down $45 per ton over the June 13th 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 $401 to $431 per ton CIF USA Port. SMU will note here that we are not seeing any offers for hot rolled at these “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 $625 per ton for domestic steel, down $2.50 per ton compared to the last time we did an update on world prices and down $10 per ton over our mid-June price. The theoretical spread between the world HR export price and the SMU HR price is $194 to $224 per ton ($294 prior to import costs), down $6 from our previous analysis but up $35 from mid-June.
The $194 to $224 spread is between $80 and $95 per ton higher than the average spread we have seen over the last few months. This is the second highest spread seen recorded by SMU, with the mid-June spread being the record high in our 3+ year history. The next next highest spread was in mid-May 2014 at $84 to $114 per ton ($184 prior to import costs). In the first half of 2015, we had more narrow spreads, some negative (meaning theoretically that domestic steel was cheaper than foreign steel). This time last year, it was $23 to $53 ($123 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 $421 per net ton ($464 per metric ton), and Chinese HRC at $364 per net ton ($401 per metric ton). Calculating in $70 to $100 per ton for freight and trader margins, that puts prices around $491 to $521 per net ton from Europe delivered to the US and $434 to $464 per ton from China (if China were able to ship to the United States which they are not).
The European numbers make more sense compared to the last HRC price offers seen by SMU a couple of weeks ago.
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.
Brett LintonRead more from Brett Linton
Latest in International Steel Prices
CRU: Turkish scrap prices continue to rise as supply tightens
Turkish scrap import prices increased for a third consecutive week.
US HRC Now Theoretically ~$200/ton More Expensive Than Offshore Imports
US Hot-rolled coil (HRC) prices continue to surge on the heels of mill increases. They have become significantly more expensive than prices for hot band imported from offshore. Domestic hot band tags moved higher for a seventh consecutive week. Imports have seen only marginal gains over the same period, according to SMU’s latest foreign vs. domestic price analysis.
US Hot Rolled Prices Surge Past Offshore Product
Hot-rolled coil (HRC) tags continue to rally in the US, broadening the price disparity between domestic and imported offshore product.
AISI: The Environment Is a Trade Issue – Why Carbon Tariffs Are Needed
The American steel industry is the backbone of the US economy and produces the cleanest steel in the world.
Gap Widens Between US and Foreign Hot Band Prices
US hot-rolled coil (HRC) tags moved higher again this week, widening the gap in pricing between imported offshore product.