Domestic Hot Rolled Remains Attractive Over Imports

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, April 10, the CRU German HRC price was $522 per net ton, down $2 from the previous week, and down $9 over two weeks prior. Adding tariffs and import costs, that puts the price at $743 per ton from Germany delivered to the U.S. The latest Steel Market Update hot rolled price average is $675 per ton for domestic steel, down $10 from both last week and two weeks ago. The spread between the German and U.S. HR price is now -$68 per ton, down from -$60 last week, but up from -$69 two weeks ago. This means domestic hot rolled steel is theoretically $68 per ton cheaper than German steel imported into the U.S. We are on a 21-week negative spread streak. The four-week average price spread is now -$63 per ton, down $7 from last week.

CRU published Italian HRC prices at $475 per net ton, down $1 from the previous week, and down $9 from two weeks prior. After adding tariffs and import costs, the delivered price of Italian HRC is approximately $684 per ton. Therefore, the spread is now -$9 per ton, down from +$0 last week, but up from -$10 two weeks ago. That means domestic sourced steel is theoretically now $9 per ton cheaper than importing Italian HRC into the U.S. The four-week average price spread is now -$5 per ton, down $4 from last week.

The CRU Far East HRC price fell $1 over last week to $490 per net ton, down $4 from two weeks prior. Adding tariffs and import costs, the delivered price of Far East HRC to the U.S. is $703 per ton. The spread is now -$28 per ton, down from -$19 last week and down from -$23 two weeks ago, meaning domestic hot rolled steel is theoretically now $28 per ton cheaper than steel imported into the U.S. from Far East Asia. This is the lowest spread seen since October 25, 2017. Mid-February marked the first negative spread since November 2017, and we are on a nine-week negative spread streak. The four-week average price spread is now -$20 per ton, down $6 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.

SMU sources are saying actual foreign offers are running around $640-700 per ton, not very attractive to buyers at this time.

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.