Foreign vs. Domestic Hot Rolled Prices: U.S. Losing Some Edge

SMU includes a 25 percent 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 anti-dumping (AD) or countervailing duties (CVD) in this analysis.

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).

German HRC

As of Wednesday, Aug. 21, the CRU German HRC price was $470 per net ton, down $6 from the previous week and down $8 from two weeks prior. Adding tariffs and import costs, that puts the price at $678 per ton from Germany delivered to the U.S. The latest Steel Market Update hot rolled price average is $585 per ton for domestic steel, unchanged over last week and up $5 over two weeks ago. The spread between the German and U.S. HR price is now -$93 per ton; it was $100 last week and -$108 two weeks ago. This means domestic hot rolled steel is theoretically $93 per ton cheaper than German steel imported into the U.S. This price spread has remained steady or shrunk each week for the last eight weeks, and we are now on a 40-week negative spread streak. The four-week average price spread is now -$102 per ton.

Italian HRC

CRU published Italian HRC prices at $445 per net ton, down $8 over last week and down $12 from two weeks prior. After adding tariffs and import costs, the delivered price of Italian HRC is approximately $646 per ton. Therefore, the spread is now -$61 per ton; it was -$71  last week and -$81 two weeks ago. That means domestic sourced steel is theoretically now $61 per ton cheaper than importing Italian HRC into the U.S. This is the 22nd consecutive week with a zero or negative price spread, and the spread has remained steady or shrunk each week for the last eight weeks. The four-week average price spread is now -$74 per ton.

Far East Asian HRC

The CRU Far East HRC price fell $13 over last week to $433 per net tons, down $21 from two weeks prior. Adding tariffs and import costs, the delivered price of Far East HRC to the U.S. is $631 per ton. The spread is now -$46 per ton; it was -$63 last week and -$78 two weeks ago. Therefore domestic hot rolled steel is theoretically now $46 per ton cheaper than steel imported into the U.S. from Far East Asia. We are on a 28-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 -$69 per ton.

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.