The following calculation is used by Steel Market Update to identify the theoretical spread between foreign hot rolled steel export prices and domestic (USA) hot rolled coil prices. We want our readers to note that we have made a decision to replace SteelBenchmarker as the primary data provider of foreign hot rolled coil prices. We were finding the comparison between Platts European (Ruhr) number (as well as other Platts foreign export numbers) to be much closer to the actual quotes we are seeing on HRC out of various steel trading companies than using the SteelBenchmarker “world export” number we did previously. We will continue to use SteelBenchmarker as a secondary number provider which we will note further down in this article.
Our primary numbers for this exercise are from Platts, with a comparison of European HRC (FOB Ruhr), Turkey HRC export pricing (FOB Turkey), and Chinese HRC export prices (FOB Chinese port). Be aware that Chinese hot rolled is not available to the U.S. market so the Chinese spread is nothing more than an exercise of what if…
SMU adds $90 per ton to these foreign prices taking into consideration freight costs, handling, trader margin, etc. This provides an approximate “to the US ports price” that can then be compared against the SMU US hot rolled price average (FOB Mill), with the result being the spread (difference) between domestic and foreign hot rolled prices. As the price spread narrows, the competitiveness of imported steel into the United States is reduced. If the spread widens, then foreign steel becomes more attractive to US flat rolled steel buyers. A positive spread means US prices are theoretically higher than foreign prices, while a negative spread means US prices are cheaper than foreign prices.
As of today (Thursday, April 13th) Platts published European HRC prices at $525 per net ton ($545 Euros per metric ton), down $18 from two weeks ago and down $32 from one month ago. Calculating in $90 per ton for import costs, that puts prices at $615 per net ton from Europe delivered to the US. The latest Steel Market Update hot rolled price average is $650 per ton for domestic steel, down $5 per ton compared to the last time we did an update on world prices on March 30th, but up $5 per ton over one month ago. This puts the theoretical spread between European and US HR prices at +$35 per ton, up from +$22 two weeks ago, and up from -$2 one month ago. This means that currently US sourced HR is theoretically $35 per ton more expensive to buy than getting HR steel imported from Europe.
Chinese HRC prices were reported at $401 per net ton ($442 per metric ton), down $28 from two weeks ago and down $82 over one month ago. Adding $90 in estimated import costs, that puts prices around $491 per ton delivered from China (if China were able to ship to the United States, which they are not). The theoretical spread between the Chinese and US HR price is +$159 per ton, up from +$136 per ton two weeks ago and up from +$72 per ton one month ago. Meaning that if Chinese HR were able to be shipped to the US, it would be $159 per ton cheaper than buying domestic steel.
Platts published Turkish export prices at $481 per net ton FOB Turkish port ($530 per metric ton), down $4 over two weeks ago but up $27 from one month ago. Adding $90 in import costs, the Turkish HRC “to the US ports” price is $571 per ton. This puts the theoretical spread between the Turkish and US HR price at +$79 per ton, down from +$80 two weeks ago and down from +$101 one month ago. This means that HR from the US is theoretically $79 per ton more expensive than importing HR from Turkey.
Please note that this is a “theoretical” calculation as freight costs, trader margin and other costs can fluctuate ultimately influencing the true market spread. And again, the Chinese spread is nothing more than an exercise of what if…
We did check this afternoon and SMU was advised that Turkish HRC offers are around $590 per ton, CIF, Duty Paid, US Gulf Port. This changes the theoretical calculation shared above to a $60 per ton spread which is at the top of the spread normally acceptable to domestic buyers.
SteelBenchmarker World Export Price
The SteelBenchmarker world export price for hot rolled bands is $478 per net ton ($527 per metric ton) FOB the port of export according to data released by SteelBenchmarker on Monday April 10th. This is down $3 per ton from the previous release on March 27th but up $3 from one month ago. Adding in $90 in estimated import costs, that puts prices around $568 per ton delivered to the US. Like we previously mentioned, the latest Steel Market Update hot rolled price average is $650 per ton.
Therefore, the theoretical spread between the SteelBenchmarker world HR export price and the SMU HR price is +$82 per ton, meaning foreign steel imported into the US is theoretically now $82 per ton cheaper than domestic steel. This spread is down from +$84 from our previous analysis but up from +$80 one month ago.
This $82 spread is about $15 per ton higher than what we have seen over the last few months. Last summer, we had record high spreads, with the June 27th 2016 spread of $210 being the record high in our 7+ year recorded history, and the July 14th 2016 spread of $204 being the second highest. Prior to 2016, the previous highest spread was $94 in May 2014. The lowest spread in our history was -$70 in August 2011 (meaning domestic steel was theoretically $70 per ton cheaper than foreign steel). This time last year, the spread was $64 per ton.
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 SteelBenchmarker world HR export prices against the SMU domestic HR average price (we will build new data using Platts and replace the SteelBenchmarker data once we have collected a sizable history). 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 its 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
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