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 Thursday, Feb. 15, Platts’ published European HRC prices were at $647 per net ton FOB Ruhr ($570 euros per metric ton), up $24 from two weeks ago, and up $55 from early-January. Adding in $90 per ton for import costs, that puts the price at $737 per net ton from Europe delivered to the U.S. The latest Steel Market Update hot rolled price average is $745 per ton for domestic steel, up $40 per ton from two weeks ago and up $77 from early-January. This puts the theoretical spread between European and U.S. HR prices at +$8 per ton, up compared to both the -$8 spread calculated two weeks ago and the -$14 spread one month ago. This means that U.S.-sourced HR is now theoretically $8 per ton more expensive than getting HR steel imported from Europe. This has reversed compared to what we saw over the previous six months, when European hot rolled steel was theoretically more expensive than U.S. steel.
Chinese HRC prices were reported by Platts as being $531 per net ton ($585 per metric ton), up $9 from two weeks ago, and up $10 from one month ago. Adding $90 in estimated import costs puts Chinese HRC prices at $621 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 +$124 per ton, up from +$93 per ton two weeks ago, and up from +$57 per ton one month ago. Meaning that if Chinese mills were able to ship HR to the U.S., it would theoretically cost $124 per ton less than buying domestic steel.
Platts published Turkish export prices at $576 per net ton FOB Turkish port ($635 per metric ton), up $9 from two weeks ago, and up $36 from one month ago. Adding $90 in import costs, the Turkish HRC “to the U.S. ports” price is $666 per ton. This puts the theoretical spread between the Turkish and U.S. HR price at +$79 per ton, up from +$48 two weeks ago, and up from +$38 one month ago. This means that HR from the U.S. is theoretically $79 per ton more expensive than importing it from Turkey. The Turkey/U.S. price spread has increased week by week since September/October 2017 when it dropped down to -$36 per ton (meaning domestic HR was $36 per ton cheaper than importing Turkish HR).
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. When considering lead times, a buyer must take into consideration the momentum of pricing both domestically and in the world markets. If U.S. prices are rising, which they are at this time, thus the shrinkage in the spreads, then one must consider when the steel is to be delivered versus what is available at a firm price from foreign sources. In most circumstances (but not all), domestic steel will deliver faster than foreign steel ordered on the same day.
Below is a graph comparing the Platts foreign HR export prices against the SMU domestic HR average price. 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
SteelBenchmarker World Export Price
The SteelBenchmarker world export price for hot rolled bands is $540 per net ton ($595 per metric ton) FOB the port of export, according to data released by SteelBenchmarker on Monday, Feb. 12. This is up $8 per ton from two weeks ago, and up $8 from one month ago. Adding in $90 in estimated import costs, that puts prices around $630 per ton delivered to the U.S. As previously mentioned, the Steel Market Update hot rolled price average this week is $745 per ton.
Therefore, the theoretical spread between the SteelBenchmarker world HR export price and the SMU HR price is +$115 per ton, meaning foreign HRC imported into the U.S. is theoretically now $115 per ton less expensive than steel purchased domestically.
The +$115 spread is $65-75 per ton higher than the average spread seen over the last few months. In late-October 2017, the spread was the lowest seen in 2017. This time last year the spread was +$52 per ton, later rising to the $70-90 range over the summer months. 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 2018 so far is +$84 per ton, while the average spread for 2017 was +$48 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.
Below is a graph comparing SteelBenchmarker world HR export prices against the SMU domestic HR average price. We also have included a line with the world price including freight and traders’ costs, 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.
Brett LintonRead more from Brett Linton
Latest in International Steel Prices
US HRC premium over offshore product dips below $150/st
US hot-rolled coil (HRC) prices moved lower again this week, remaining largely on a downtrend since mid-January. The result has caused domestic tags to lessen their price premium over imported products week on week (w/w).
US HRC premium over offshore product down, nears $150/st
US hot-rolled coil (HRC) prices were again lower this week, pushing the price premium domestic hot band carries over imported products lower vs. the prior week.
US HRC remains $200/st more expensive than imports
US hot-rolled coil (HRC) prices law little movement this week, a similar trend seen in offshore markets. Thus, the price premium domestic hot band carries over imported products was largely unchanged vs. the prior week.
US premium over offshore HRC dips below $200/st
US hot-rolled coil (HRC) prices declined further this week, easing to their lowest level since late November. And while domestic tags remain notably more expensive than offshore product, the premium has declined as imported hot band tags have moved higher.
US HRC premium over imports dips to $220/st
US hot-rolled coil (HRC) prices edged down this week while import prices moved higher on average. Domestic hot bands’ premium over cheaper imports declined as a result. But overall, US product remains substantially more expensive than overseas material. All told, US HRC prices are 21.4% more expensive than imports, a premium that is down three […]