This week’s SMU comparison of foreign and domestic hot rolled prices shows that U.S prices continue to remain advantageous over foreign imports, even further so than two weeks ago, according to SMU and CRU indices. The price gap between domestic HRC compared to German and Italian products has widened significantly over the past few weeks, while the East/Southeast Asian price spread remains low, hovering in a $20 per ton range.
The following calculation is used by Steel Market Update to identify the theoretical spread between foreign hot rolled steel prices (delivered to U.S. ports) and domestic hot rolled coil prices (FOB domestic mills). We want our readers to be aware that this is only a “theoretical” calculation as freight costs, trader margin and other costs can fluctuate, ultimately influencing the true market spread. We are comparing the SMU U.S. hot rolled weekly index to CRU hot rolled weekly indices for Germany, Italy and the Far East (East and Southeast Asian port).
SMU includes a 25 percent import tariff effective on foreign prices after March 23, 2018. We then add $90 per ton to the foreign prices in consideration of freight costs, handling, trader margin, etc., to provide an approximate “CIF U.S. ports price” that can be compared against the SMU U.S. hot rolled price. Note that we do not include any antidumping (AD) or countervailing duties (CVD) in this analysis.
As of Wednesday, April 15, the CRU German HRC price was $460 per net ton, up $4 over the previous week, but down $13 from two weeks prior. Adding tariffs and import costs, that puts the German price at $665 per ton delivered to the U.S. The latest SMU hot rolled price average is $495 per ton, down $5 per ton over last week and down $45 over two weeks prior. Therefore, domestically sourced HRC is theoretically $170 per ton cheaper than imported German HRC; the spread was $160 last week and $141 two weeks ago. U.S. prices have held this price advantage for 16 consecutive months.
CRU published Italian HRC prices at $426 per net ton, up $3 from last week, but down $18 over two weeks ago. After adding tariffs and import costs, the delivered price of Italian HRC is approximately $623 per ton. Accordingly, domestic HRC is theoretically $128 per ton cheaper than imported Italian HRC; the spread was $119 the previous week and $105 two weeks prior. U.S. prices have held this price advantage for over one year.
Far East Asian HRC
The CRU Far East Asian HRC price fell $5 over last week to $349 per net ton, down $23 from two weeks prior. Adding tariffs and import costs, the delivered price of Far East Asian HRC to the U.S. is $526 per ton. Therefore, U.S.-produced HRC is theoretically $31 per ton cheaper than imported Far East Asian HRC; the spread was $33 last week and $15 two weeks ago. Domestic prices have held this price advantage for over 14 consecutive months.
The graph below compares all four price indices and highlights the effective date of the tariffs. Foreign prices are referred to as “equalized,” meaning they have been adjusted to include tariffs and importing costs for a like-for-like comparison against the U.S. price.
Note: Freight is an important part of the final determination on whether to import foreign steel or buy from a domestic mill supplier. Domestic prices are referenced as FOB the producing mill, while foreign prices are FOB the Port (Houston, NOLA, Savannah, Los Angeles, Camden, etc.). Inland freight, from either a domestic mill or from the port, can dramatically impact the competitiveness of both domestic and foreign steel. When considering lead times, a buyer must take into consideration the momentum of pricing both domestically and in the world markets. In most circumstances (but not all), domestic steel will deliver faster than foreign steel ordered on the same day.
Brett LintonRead more from Brett Linton
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