Little Appeal to Buy Foreign Hot-Rolled Steel over Domestic

The following calculation is used by SMU to identify the theoretical spread between foreign HRC prices (delivered to US ports) and domestic HRC prices (FOB domestic mills). This is only a “theoretical” calculation because freight costs, trader margins, and other costs can fluctuate, ultimately influencing the true market spread. This compares the SMU US HRC weekly index to the CRU HRC weekly indices for Germany, Italy, and Far East Asian ports.

In consideration of freight costs, handling, and trader margin, we add $90 per ton to all foreign prices to provide an approximate “CIF US ports price” that can be compared against the SMU domestic HRC price. Spot checks show freight for Southeast Asian imports into Houston costing $100–110 per ton, costs for European products between $80–120 per ton, and costs for Turkish steel around $150 per ton. Buyers should use our $90-per-ton figure as a benchmark and adjust up or down based on their own shipping and handling costs as necessary.

If any of our readers have experience importing foreign steel and want to share your thoughts on these costs, we welcome your insight and comments: Brett@SteelMarketUpdate.com.

Note that effective Jan. 1, 2022, the traditional Section 232 tariff no longer applies to most imports from the European Union. It has been replaced by a tariff rate quota (TRQ). Therefore, the German and Italian price comparisons in this analysis no longer include a 25% tariff. SMU still includes the 25% S232 tariff on foreign prices from other countries. We do not include any antidumping (AD) or countervailing duties (CVD) in this analysis.

Far East Asian HRC (East and Southeast Ports)

As of Wednesday, Aug. 31, the CRU Far East Asian HRC price declined $9 week-over-week to $535 per net ton ($590 per metric ton), down $18 versus one month prior. Adding a 25% tariff and $90 per ton in estimated import costs, the delivered price of Far East Asian HRC to the US is $759 per ton. The latest SMU hot rolled average is $785 per ton, up $15 week-over-week but down $20 per ton from one month ago. Therefore, US-produced HRC is now $26 per ton more expensive than steel imported from Far East Asia. Last week, we saw identical prices between the US and Far East Asia, an occurrence not seen in steel since early March 2022. One month ago we saw a spread of $23 per ton (meaning Far East Asian imports were cheaper than domestic steel). This differential has overall eased since peaking at $375 per ton in May. The largest price spread between these regions was $847 per ton in September 2021, when Far East Asian prices held a considerable advantage.

Italian HRC

CRU published Italian HRC prices at $672 per net ton ($741 per metric ton), up $2 per ton from last week, but down $29 per ton compared to one month ago. After adding import costs, the delivered price of Italian HRC is approximately $762 per ton. Accordingly, domestic HRC is now theoretically $23 per ton more expensive than imported Italian HRC. This is up from a spread of $10 per ton one week earlier and up from $14 per ton four weeks ago. The highest spread this year was $200 per ton in May. Italian hot-rolled has held this price advantage for the past five months. Prior to the removal of the 25% Section 232 tariff, the November 2021 spread of $577 per ton was the largest in SMU’s data history.

German HRC

The latest CRU German HRC price declined $12 per ton from last week to $684 per net ton ($754 per metric ton), down $83 per ton from one month ago. After adding import costs, the delivered price of German HRC is approximately $774 per ton. Accordingly, domestic HRC is now theoretically $11 per ton more expensive than imported German HRC. The five prior weeks saw the opposite situation; domestic prices were $16 per ton cheaper than imported German steel last week and $52 per ton cheaper one month ago. Prior to late June, German prices held the price advantage for 14 consecutive weeks and had reached a 2022 high of $164 in May. Prior to the removal of the 25% tariff, the October 2021 spread of $504 per ton was the largest seen in SMU’s data history.

The graph below compares all four price indices and highlights the effective date of the tariffs. Foreign prices are referred to as “equalized,” meaning they have been adjusted to include importing costs (and tariffs in some cases) for a like-for-like comparison against the US 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 CIF 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.

By Brett Linton, Brett@SteelMarkeUpdate.com