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Difference Between Chinese And US Steel Prices Narrows

Mohit Oberoi, CFA - Author

Dec. 26 2014, Updated 3:25 p.m. ET

Difference in price

One of the primary reasons for record steel imports in the United States has been higher US steel prices compared to other countries. Higher steel prices in the United States make it an attractive destination for steel from countries such as South Korea and China. US steel prices are at a premium compared to other countries. We’ll look at the difference between Chinese and US steel prices in this part.

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Steel price difference narrows

The above chart shows China’s export price of hot rolled coil (or HRC) plotted against the HRC price in the United States. The difference in price narrowed to ~150 per ton. The price differential reached record highs of ~180 per ton in September.

The price differential has come down because steel prices in the United States have come down by around 15% in the past couple of months. Steel prices in China are down by close to 10% over this period.

Price difference still quite high

The price differential is still quite high to encourage imports. The marginal narrowing of the price difference won’t deter imports. However, the falling steel prices in the United States are a bigger risk for steel companies.

Revenues of steel companies such as ArcelorMittal (MT), Steel Dynamics (STLD), AK Steel (AKS), and U.S. Steel Corporation (X) are negatively impacted by lower steel prices in the United States. Some of these companies are part of the SPDR S&P Metals and Mining ETF (XME).

Steel companies either make sales on contract pricing or at current spot prices. Sales made at spot prices are more vulnerable to volatility in steel prices. Almost one-third of U.S. Steel Corporation’s (X) flat-rolled revenues are from sales made at spot steel prices.

Let’s now look at some indicators in Europe. Move to the next part to learn more.


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