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, July 24, the CRU German HRC price was $486 per net ton, down $2 from the previous week and down $5 from two weeks prior. Adding tariffs and import costs, that puts the price at $698 per ton from Germany delivered to the U.S. The latest Steel Market Update hot rolled price average is $560 per ton for domestic steel, up $10 over last week and up $25 over two weeks ago. The spread between the German and U.S. HR price is now -$138 per ton, up from -$150 last week and up from -$169 two weeks ago. This means domestic hot rolled steel is theoretically $138 per ton cheaper than German steel imported into the U.S. This price spread has shrunk each week for the last four weeks. The late-June spread of -$201 was the lowest spread seen in our 7+ year history, and we are now on a 36-week negative spread streak. The four-week average price spread is now -$163 per ton, down $16 from last week.

CRU published Italian HRC prices at $460 per net ton, down $4 from last week and down $8 from two weeks prior. After adding tariffs and import costs, the delivered price of Italian HRC is approximately $665 per ton. Therefore, the spread is now -$105 per ton, up from -$120 last week and up from -$140 two weeks ago. That means domestic sourced steel is theoretically now $105 per ton cheaper than importing Italian HRC into the U.S. This is the 18th consecutive week with a zero or negative price spread. This price spread has also shrunk each week for the last four weeks, and the late-June spread of -$170 was the lowest in our limited history. The four-week average price spread is now -$131 per ton, down $17 from last week.

The CRU Far East HRC price rose $4 over both last week and two weeks prior and now stands at $469 per net ton. Adding tariffs and import costs, the delivered price of Far East HRC to the U.S. is $676 per ton. The spread is now -$116 per ton, up from -$121 last week and up from -$136 two weeks ago, meaning domestic hot rolled steel is theoretically now $116 per ton cheaper than steel imported into the U.S. from Far East Asia. We are on a 24-week negative spread streak, which started in mid-February of this year and was the first negative spread since November 2017. The four-week average price spread is now -$131 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.

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.