Steel Products Prices North America

SMU Canvass: Buying Foreign—Risk or Opportunity?

Written by Tim Triplett

Is buying foreign steel today a big opportunity, in light of the wide spread between foreign and domestic pricing, or a big risk, in light of the tenuous trade situation in Washington? Steel Market Update canvassed the market and received widely varying views. For some, placing foreign orders is “a no-brainer.” For others, concerned about the political staying power of the tariffs, the potential reward comes nowhere near covering the risk. Following are some insightful (anonymous) comments from SMU sources:

• “I would agree, buying foreign is no brainer, but we are still having a hard time gaining new import POs because the relative price levels are still VERY high. Customers are waiting for the cycle to come back down, which likely prolongs the higher price cycle.”

• “If we were actively issuing POs, we would most certainly be in the import market. The spread between import and domestic is at least $100/ton. This is certainly more than enough incentive for our company to buy imported material. We do not anticipate any additional duties beyond the current duties in place.”

• “I completely agree [it’s a no brainer]. I am paying below $39.50/cwt FOB Houston for September arrival for HR from Korea/Egypt/Turkey. If the tariff is removed, my price drops 25 percent on all my contracts for the steel I have on order. There is no risk, as far as I’m concerned, for me to buy foreign steel.”

• “The potential exists that later into the fourth quarter when foreign steel is arriving and contract programs at domestic mills are worked out, prices could move into an equivalent price level where foreign and domestic prices are closer together. This would leave program customers feeding heavily off the domestic mill programs going forward since gains using foreign would be minimal and it would make foreign riskier. I’m calculating this estimated pricing area to be around the $43.75-$45.75 range for cold rolled…. If the tariffs are removed, the elevator ride down will be a rapid one. If the domestic mills are overly greedy and tariffs remain in place, foreign is a no-brainer.”

• “This is not a ‘no-brainer’ to me. The U.S. domestic price could drop to the level of imports by late Q4, especially if some tariffs are rescinded. Tariffs on NAFTA and EU may go away, but what about the others? If you buy from the wrong country and the tariff stays in place, it will hurt. If any tariffs are removed, the price will fall. Prices of foreign offers are up for no real reason. It seems that most sellers are getting a lot of interest and smell an opportunity surrounding tariffs.”

• “We have seen offers from various traders of foreign product. We have opted not to participate for a couple of reasons. Price was not competitive. We have seen the offers come down a little, but they are still too high for us to consider pulling the trigger. We tried to pre-sell some of these offers to our customer base, but they would not consider it as they also felt there is too much of a risk factor in not knowing what is going to happen with the tariff situation.”

• “Some foreign mills are quoting domestic prices plus surcharge, which makes them way uncompetitive. Others are absorbing some or all of the surcharge, making prices competitive or slightly better than domestic. The obvious risk is if the surcharge goes away, prices will collapse. Who knows the likelihood, as our president is a nut job. I buy mostly foreign because the steel type I need is limited in domestic availability.”

• “I think the forward curve shows the risk pretty clearly. Otherwise, import purchases seem to be returning to almost normal—almost normal availability (in quantity), and almost normal in risk. The tariffs, I think, present more potential volatility than normal risk over import lead-times.”

• “The import offers we are seeing are not very attractive when you consider that the steel market is at the top of its cycle and domestic prices could come down in the fourth quarter. Additionally, we are not seeing any increase in the tonnage being offered. This is somewhat surprising based on the pricing differentials between regions.”

• “What if the tariffs disappear and we are stuck with $50/cwt steel in a $35/cwt market? Our customers will eventually get back to their type of numbers, but in the meantime distributors will be broke. We do not currently see foreign as a risk as domestic prices are holding and there is enough spread to continue the foreign purchases. However, this is the time to begin reducing overall quantities of inventories. The risk is in the amount of expensive steel you possess versus your inventory turns.”

• “I do not see the tariffs being removed, so the risks are traditional based on the longer lead time. I would view foreign offers as an opportunity if you can get a relatively short lead time. The domestic mills show no signs of giving up on the current market pricing. We believe there will be price declines, but we are not sure how quickly prices will descend. That makes a foreign buy opportunity a bit riskier. The opportunity would be dependent on the lead time.”

• “Our most recent offers for import from the EU have a clause that states the 25 percent will be adjusted off the invoice if the tariff is removed/modified prior to the steel’s arrival at the port of entry. In the event that tariffs might be removed/modified while hundreds of import vessels are in transit to the U.S., I believe the U.S. pricing would profoundly correct, as imports would be significantly cheaper than domestic. We still believe that pricing will not escalate because the domestic mills know there is high visibility as more and more consumers find themselves non-competitive in the global market. Sometime in first-half 2019 we could see a real drop in demand from steel consumers moving production offshore. Not sure yet if we will see significant changes from Washington regarding trade AFTER the mid-term elections. It will be very interesting to see how things shake out regarding 2019 mill contract negotiations, as Q4 may be fragile as the cheaper imports arrive. Additionally, we see USS and AMUSA being pinched in their USW negotiations as pricing is near record highs and significant pressure is applied to give the USW a ‘fair’ deal since Trump gave the U.S. mills a ‘gift’ with 232.”

• “The most recent offer we received last week on plate up through 3-inch was not attractive enough for us to even consider. The risk/reward is far too great to buy import at this time. Will the tariffs be reduced or removed? It is only a guess at this point, thus we have to proceed like they will stay in place for now. We do not see a sharp decline in domestic pricing anytime soon. Nothing points to declining prices in this market.”

• “We’re not interested in foreign at this time. The market is at all-time highs, we are entering the end-of-year period, pricing is not that attractive, and customers don’t want to commit tons out that far.”

• “We entertained three foreign offers last week. Base pricing was $80 per ton below current CRU. However, there were adders for gauge, width and zinc (for coated) that pushed numbers close to domestic. We believe traders are fishing for info, trying to see where the U.S. market is willing to transact.”

• “Many players and analysts expect some price weakness toward the end of this year. If that happens, it is not a risk-free certainty that all imported products will still be a big advantage. Furthermore, we have heard some players discuss the possibility of additional trade measures. Not long ago the DOC stated it would investigate additional countries regarding possible circumvention through Vietnam, for example. It is not impossible we’ll see new AD/CVD or anti-circumvention actions. Lastly, there is always some import risk, whether extended lead-times, shipping problems or possible quality questions. For some applications, is not simple to replace domestic (or a trusted import source) with a new, untested import option. We are evaluating some import opportunities, but we are proceeding cautiously. We prefer to have a firm commitment on the sales end. On pricing, we are still struggling to find much incentive to book HRC – in part because our company faces notable transit and in-bound logistics costs. The very-tight freight market is not working in the importers’ favor (if inland logistics are required).”

• “My customer base is reluctant to buy past immediate need as they feel now is the top of market. Domestic mills are holding the line on price, but no reductions yet.  Foreign sourcing for September/November is 15-20 percent under domestic price laid in Port of Houston. Availability of foreign tons is still sketchy. Given the track record of the Trump presidency’s unpredictable decision making, even attractive foreign buys could still get quota’d, tariffed, quarantined or prohibited by presidential fiat. Domestic mills are assiduously watching import license data. They will take steps if foreign tons begin to undercut pricing or market share.”

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