This week’s comparison of foreign and domestic hot rolled prices shows that U.S prices now hold the widest price advantage over foreign imports in our limited 10-year data history, according to SMU and CRU indices. After slightly shrinking in May, the price gap between domestic HRC compared to German, Italian, and East/Southeast Asian imports has widened over the last few months and surpassed the previous record levels from 2019.
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). 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 ports).
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, Aug. 12, the CRU German HRC price was $452 per net ton, up $6 over the previous week and up $12 from two weeks prior. Adding tariffs and import costs, that puts the German price at $655 per ton delivered to the U.S. The latest SMU hot rolled price average is $440 per ton, down $10 over both last week and two weeks prior. Therefore, domestically sourced HRC is theoretically $215 per ton cheaper than imported German HRC; the spread was $198 last week and $190 two weeks ago. This is the widest spread seen since mid-June 2019. U.S. prices have held this price advantage for over a year and a half.
CRU published Italian HRC prices at $421 per net ton, down $1 from last week, but up $3 over two weeks ago. After adding tariffs and import costs, the delivered price of Italian HRC is approximately $616 per ton. Accordingly, domestic HRC is theoretically $176 per ton cheaper than imported Italian HRC; the spread was $168 the previous week and $163 two weeks prior. This is also the widest spread seen since mid-June 2019. U.S. prices have held this price advantage for over one year.
Far East Asian HRC
The CRU Far East Asian HRC price rose $21 per ton over last week to $456 per net ton, $25 higher than the price two weeks ago. Adding tariffs and import costs, the delivered price of Far East Asian HRC to the U.S. is $660 per ton. Therefore, U.S.-produced HRC is theoretically $220 per ton cheaper than imported Far East Asian HRC; the spread was $184 last week and $179 two weeks ago. Domestic prices have held this price advantage for a year and a half.
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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