Steel Market Update’s latest analysis of foreign and domestic steel prices shows a growing attraction for foreign imports across the board. After taking freight costs, trader margins and tariffs into consideration, foreign prices now hold potential discounts of 8% to 38%. The spread between domestic HRC and foreign imports has surged since late-May, reaching record highs in favor of foreign HRC producers in Far East Asia. The German and Italian HRC price attraction continues to grow over domestic prices as well, with the spreads from both regions approaching the record levels seen earlier this year.
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, July 14, the CRU Far East Asian HRC price remained flat from the previous week at $826 per net ton ($910 per metric ton), down $18 per ton from two weeks prior. Adding tariffs and import costs, the delivered price of Far East Asian HRC to the U.S. is $1,122 per ton. The latest SMU hot rolled price average is $1,820 per ton, up $50 over both last week and two weeks prior. Therefore, U.S.-produced HRC theoretically is now $698 per ton more expensive than imported Far East Asian HRC, up from $648 last week, and up from $625 two weeks ago. This is now the largest theoretical spread between Far East Asian and domestic HRC prices in SMU’s four-year history (we have seen a new record spread each of the last eight weeks). Prior to May, the highest spread was $373 in mid-February. Prior to 2021, the previous record high was $183 in March 2018.
CRU published Italian HRC prices at $1,219 per net ton ($1,344 per metric ton), down $18 from last week, and down $23 from two weeks ago. After adding tariffs and import costs, the delivered price of Italian HRC is approximately $1,614 per ton. Accordingly, domestic HRC is theoretically $206 per ton more expensive than imported Italian HRC, up from $133 the week prior, and up from $126 two weeks ago. This is very close to the largest price spread in our history, which was $210 seen in mid-March 2021. Prior to 2021, the previous record high was $143 in July 2016. Recall that in late-May/early-June, Italian HRC briefly lost its price advantage over domestic steel for two weeks.
The latest CRU German HRC price is $1,271 per net ton ($1,401 per metric ton), up $1 from last week, but down $11 from two weeks ago. After adding tariffs and import costs, the delivered price of German HRC is approximately $1,679 per ton. Accordingly, domestic HRC is theoretically $141 per ton more expensive than imported German HRC, up from $93 last week, and up from $78 two weeks ago. The largest price spread in our history was $172 seen in mid-March 2021. Prior to 2021, the previous record high was $121 in March 2018. Like Italian HRC, German HRC briefly lost its price advantage over domestic steel for two weeks in late-May/early-June.
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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