Foreign steel imports from two of the three regions tracked by Steel Market Update are losing their price advantage over domestic steel, according to our latest foreign versus domestic hot rolled steel price comparison. The price differentials between domestic HRC compared to foreign imports had surged through February and March to reach record highs in favor of foreign producers. Those spreads have since narrowed for imported German and Italian HRC, while Far East Asian HRC prices remain significantly lower than domestic prices after taking freight costs, trader margins and tariffs into consideration.
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 margins and other costs can fluctuate, ultimately influencing the true market spread. This compares the SMU U.S. hot rolled weekly index to CRU hot rolled weekly indices for Germany, Italy and Far East Asian ports.
SMU includes a 25% 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.
Far East Asian HRC (East and Southeast Ports)
As of Wednesday, June 2, the CRU Far East Asian HRC price decreased $9 over the previous week to $880 per net ton ($970 per metric ton), down $36 per ton from two weeks prior. Adding tariffs and import costs, the delivered price of Far East Asian HRC to the U.S. is $1,190 per ton. The latest SMU hot rolled price average is $1,620 per ton, up $30 over last week and up $50 from two weeks prior. Therefore, U.S.-produced HRC theoretically is now $430 per ton more expensive than imported Far East Asian HRC, up from $389 last week, and up from $335 two weeks ago. This spread has reversed its course over the last month, as the potential discount held by Far East Asian HRC imports was shrinking from mid-February through mid-April. This is now the largest theoretical spread seen this year between Far East Asian and domestic HRC, surpassing the previous high of $373 in mid-February.
CRU published Italian HRC prices at $1,235 per net ton ($1,361 per metric ton), up $24 from last week, and up $79 from two weeks ago. After adding tariffs and import costs, the delivered price of Italian HRC is approximately $1,633 per ton. Accordingly, domestic HRC is theoretically $13 per ton less expensive than imported Italian HRC, unchanged from the week prior. Up until two weeks ago, Italian HRC had held the price advantage, which reached a high of $210 in mid-March.
The latest CRU German HRC price is $1,230 per net ton ($1,356 per metric ton), down $1 from last week, but up $66 from two weeks ago. After adding tariffs and import costs, the delivered price of German HRC is approximately $1,628 per ton. Accordingly, domestic HRC is theoretically $8 per ton less expensive than imported German HRC, down from $39 last week. Up until two weeks ago, German HRC had held the price advantage, which reached a high of $172 in early-March.
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.
By Brett Linton, Brett@SteelMarkeUpdate.com
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