WSD Strategic Insights CV: US currency value impacts steel export price

Monday, 02 April 2018 23:31:31 (GMT+3)   |   San Diego
       

The US dollar on a trade-weighted basis – i.e., calculated on the basis of the US’s trade with about 26 other countries – has had amazing swings over the years.  From a weak point of just 0.85 in 1978, it peaked at about 1.28 in 1984.  By 1995, it had fallen again to 0.85, followed by a strengthening to about 1.13 in 2002.  In 2014, it was down again to only 0.80; but, it then rallied to 1.03 in 2016.  Currently, it’s about 0.90.  (Note:  On a trade-weighted basis, the US dollar value as of March 1973 was set equal to 100.)

 

Regarding the impact on international steel prices, a stronger dollar brings down foreign mills’ costs relative to those in the United States – and, as a result, all other things held the same, drives down the world steel export price.  (Note:  The hot-rolled band export price is a good proxy for the steel price, rather than rebar, because it tends to be less impacted by swings in the price of highly volatile steel scrap.)

Currently, if a median-cost integrated steel mill’s hot-rolled band operating cost is about $500 per tonne, we estimated that roughly two-thirds of this cost is largely for steelmakers’ raw materials – i.e., in dollar-denominated items.  Hence, the home-currency cost, at one-third of costs, is roughly $150 per tonne.

Since the 2016 peak, the trade weighted US dollar has fallen 13%.  If we multiply the non-US mill’s home-currency cost of $150 per tonne by 13%, the result is $20 per tonne – or, the estimate of how much the weakened dollar has benefited the cost position of a typical US integrated steel plant. 

 

 

 

 

 

 

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