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Swings in the U.S. dollar impact world export prices

Peter Marcus & John Villa, from World Steel Dynamics, explore the relationship between US dollar fluctuations and global steel export price

Peter Marcus will be speaking at the upcoming Steel Success Strategies Conference, 25-27 June 2018 in New York City.

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Swings in the U.S. dollar impact world export prices


 
The U.S. dollar on a trade-weighted basis – i.e., calculated on the basis of the USA’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 U.S. 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 U.S. dollar has fallen 13%.  If we multiply the nonUSA 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 USA integrated steel plant.  



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