The following calculation is used by Steel Market Update to identify the theoretical spread between foreign hot rolled steel import prices (delivered to USA ports) and domestic (USA) hot rolled coil prices (FOB Domestic mills). We want our readers to be aware that this is only a “theoretical” calculation as freight costs, trader margin and other costs can fluctuate, ultimately influencing the true market spread.
Our primary numbers for this analysis are from Platts as we compare European HRC export pricing (FOB Ruhr), Turkey HRC export pricing (FOB Turkey) and Chinese HRC export pricing (FOB Chinese port). Be aware that Chinese hot rolled pricing is not available to the U.S. market, so the Chinese spread is nothing more than an exercise in “what if.” SteelBenchmarker is the secondary data provider of foreign hot rolled coil prices and is noted further down in this article.
SMU adds $90 per ton to these foreign prices taking into consideration freight costs, handling, trader margin, etc. This provides an approximate “CIF U.S. ports price” that can then be compared against the SMU U.S. 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 U.S. flat rolled steel buyers. A positive spread means U.S. prices are theoretically higher than foreign prices, while a negative spread means U.S. prices are less than foreign prices.
As of Friday, Dec. 1, Platts published European HRC prices at $576 per net ton FOB Ruhr ($534 euros per metric ton), up $1 from both two weeks ago and late-October. Adding in $90 per ton for import costs, that puts the price at $666 per net ton from Europe delivered to the U.S. The latest Steel Market Update hot rolled price average is $615 per ton for domestic steel, up $10 per ton from two weeks ago, and up $35 per ton over our late-October price. This puts the theoretical spread between European and U.S. HR prices at -$51 per ton, up from -$60 two weeks ago, and up from -$85 one month ago. This means that U.S.-sourced HR is theoretically now $51 per ton cheaper than getting HR steel imported from Europe. This price spread is not as favorable to U.S. buyers today as what was seen for spreads in October.
Chinese HRC prices were reported by Platts as being $496 per net ton ($547 per metric ton), up $1 from two weeks ago, and down $4 from one month ago. Adding $90 in estimated import costs puts Chinese HRC prices at $586 per ton delivered (if Chinese mills were able to ship to the United States, which they are not). The theoretical spread between the Chinese and U.S. HR price is +$29 per ton, up from +$20 per ton two weeks ago, and up from -$10 per ton one month ago. Meaning that if Chinese mills were able to ship HR to the U.S., it would cost $29 less than buying steel produced domestically.
Platts published Turkish export prices at $494 per net ton FOB Turkish port ($545 per metric ton), unchanged from two weeks ago, and down $32 from one month ago. Adding $90 in import costs, the Turkish HRC “to the U.S. ports” price is $584 per ton. This puts the theoretical spread between the Turkish and U.S. HR price at +$31 per ton, up from +$21 two weeks ago, and up from -$36 one month ago. This means that HR from the U.S. is theoretically $31 per ton more expensive than importing it from Turkey. September and October 2017 were the only months this year with negative spreads; Turkish HR was $40-$80 cheaper than domestic steel over the summer months.
We would normally include a screenshot of our interactive ‘world vs. domestic steel price’ graph for both Platts and SteelBenchmarker in this article, but we are having technical difficulties generating these two particular graphs at the moment. We apologize for the inconvenience and are working to restore this content as soon as possible.
SteelBenchmarker World Export Price
The SteelBenchmarker world export price for hot rolled bands is $513 per net ton ($566 per metric ton) FOB the port of export, according to data released by SteelBenchmarker on Monday, Nov. 27. This is up $4 from the previous release on Nov. 13, and down $4 from one month ago. Adding in $90 in estimated import costs, that puts prices around $603 per ton delivered to the U.S. As previously mentioned, the latest Steel Market Update hot rolled price average is $615 per ton.
Therefore, the theoretical spread between the SteelBenchmarker world HR export price and the SMU HR price is +$12 per ton, meaning foreign HRC imported into the U.S. is theoretically now $12 per ton cheaper than steel purchased domestically. The price spread was previously +$6 in mid-November, and -$27 in late-October.
Although up over October, the +$12 spread is in line with the average spread seen over the last few months. The late-October spread was the lowest seen in 2017. This time last year, the spread was +$55 per ton and continued to rise and remain high through the first half of 2017. The record high in our seven-year history was +$210 on June 27, 2016 (meaning domestic steel was theoretically $210 per ton more expensive than foreign steel), while the record low was -$70 in August 2011. The average spread for 2017 YTD continues to move lower; it is now +$49 per ton.
We want to again remind our readers that the calculations shown above are “theoretical,” but in most markets are probably a good indicator of where you can expect to find offers being made.
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.
Brett LintonRead more from Brett Linton
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