Foreign vs. Domestic Hot Rolled Prices: Spread Shrinking

SMU now includes a 25 percent import tariff in our foreign vs. domestic price calculations, 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. This provides an approximate “CIF U.S. ports price” that can then be compared against the SMU U.S. hot rolled price. The difference between the domestic and foreign hot rolled prices is then referred to as the “price spread.” 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 foreign steel has a price advantage (U.S. prices are higher than foreign prices), while a negative spread means domestic steel has a price advantage (U.S. prices are less than foreign prices). Note that we do not include any anti-dumping (AD) or countervailing duties (CVD) in this analysis.

As of Wednesday, Jan. 16, the CRU German HRC price was $555 per net ton, down $2 from both the previous week and two weeks prior. Adding tariffs and import costs, that puts the price at $784 per ton from Germany delivered to the U.S. The latest Steel Market Update hot rolled price average is $685 per ton for domestic steel, down $35 over last week and down $45 from two weeks ago. The spread between the German and U.S. HR price is now -$99 per ton, down from -$66 last week, and down from -$56 two weeks ago. This means domestic hot rolled steel is theoretically $99 per ton cheaper than German steel imported into the U.S. The spread has widened each week since early-December. The four-week average price spread is now -$64 per ton, down $17 from last week.

CRU published Italian HRC prices at $483 per net ton, up $2 from the previous week and unchanged from two weeks prior. After adding tariffs and import costs, the delivered price of Italian HRC is approximately $694 per ton. Therefore, the spread is now -$9 per ton, down from +$29 last week, and down from +$36 two weeks ago. That means domestic HRC is theoretically now $9 per ton cheaper than Italian steel imported into the U.S. This is the first time domestic HRC has had an advantageous price over Italian steel in over one year. The four-week average price spread is now +$27 per ton, down $14 from last week.

The CRU Far East HRC price rose $5 over last week to $440 per net ton, unchanged from two weeks prior. Adding tariffs and import costs, the delivered price of Far East HRC to the U.S. is $640 per ton. The spread is now +$45 per ton, down from +$86 last week, and down from +$90 two weeks ago, meaning hot rolled steel imported from Far East Asia is theoretically $45 per ton cheaper than U.S. HRC. This is the lowest spread seen since January 2018. The four-week average price spread is now +$80 per ton, down $15 from last week.

The graph below shows all four prices together and points out the effective date of the tariffs. Foreign prices are referred to as “equalized,” meaning they have been adjusted with the tariffs and importing costs for an apples-to-apples 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.