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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