Foreign vs. Domestic HRC Price Spread Shrinking

SMU adds $90 per ton to these foreign prices taking into consideration freight costs, handling, trader margin, etc. This provides an approximate “CIF U.S. ports price” that can then be compared against the SMU U.S. hot rolled price, with the result being the spread (difference) between domestic and foreign hot rolled prices. As the price spread narrows, the competitiveness of imported steel into the United States is reduced. If the spread widens, then foreign steel becomes more attractive to U.S. flat rolled steel buyers. A positive spread means U.S. prices are higher than foreign prices, while a negative spread means U.S. prices are less than foreign prices.

As of Wednesday, Sept. 5, the CRU German HRC price was $601 per net ton, down $3 from the previous week. Adding $90 per ton for import costs, that puts the price at $691 per ton from Germany delivered to the U.S. The latest Steel Market Update hot rolled price average is $865 per ton for domestic steel, down $15 over last week. The spread between German and U.S. HR prices is now +$174 per ton, down from +$186 last week, and down from +$206 two weeks ago. That means domestic HR is now theoretically $174 per ton more expensive than importing HR steel from Germany. This is the sixth consecutive weekly decline, down $57 total. The four-week average price spread is now +$195 per ton, down $10 from last week.

CRU published Italian HRC prices down $4 over last week to $568 per net ton. After adding import costs, we get a delivered price of approximately $658 per ton. The spread between the Italy and U.S. figure is +$207 per ton, down from +$218 one week ago and +$232 two weeks ago. Meaning that U.S. HR is theoretically $207 per ton more expensive than importing steel from Italy. Like the German spread, this is the sixth consecutive weekly decline in the Italian price spread, down $59 total. The four-week average is now +$225, down $10 over last week.

The CRU Far East HRC price fell $2 to $535 per net ton. Adding import costs, that puts the price at $625 per ton. The spread between the Far East and U.S. figure is +$240 per ton, down from +$253 last week and down from +$258 from two weeks ago. That means domestic HR would theoretically be $240 per ton more expensive than importing steel from East or Southeast Asia. This is the fourth consecutive weekly decline, down $30 total. The four-week average price spread is now +$253 per ton, down $7 from last week.

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.