Domestic HRC’s Competitive Advantage Slipping Away

The average spread flipped from an advantage of $18 per ton over foreign hot band last week to a $26-per-ton disadvantage as US prices also press higher.

SMU uses the following calculation to identify the theoretical spread between foreign HRC prices (delivered to US ports) and domestic HRC prices (FOB domestic mills): Our analysis compares the SMU US HRC weekly index to the CRU HRC weekly indices for Germany, Italy, and Far East Asian ports. This is only a theoretical calculation because costs to import can vary greatly and often fluctuate, which influence the true market spread.

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. Buyers should use our $90-per-ton figure as a benchmark, adjusting it based on their shipping and handling costs. If you have experience importing foreign steel and want to share your thoughts on these costs, we welcome your insight and comments: david@steelmarketupdate.com.

Far East Asian Hot-Rolled Coil (East and Southeast Ports)

As of Thursday, Feb. 23, the CRU Far East Asian HRC price increased by $9 per ton to $608 per net ton ($670 per metric ton), and was up $27 from levels 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 $850 per ton. The latest SMU hot-rolled average is $875 per ton, up $50 per ton from our previous price update, and up $115 per ton compared to our price one month ago.

Therefore, US-produced HRC is now $25 per ton more costly than steel imported from Far East Asia. This is a reversal from a week ago, when domestic HRC had a $23-per-ton spread advantage over HRC from the Far East Asian markets.

One month ago we saw a $56-per-ton spread advantage for the US HRC, slipping from some of the largest price appeals domestic HRC has had over Far East Asian HRC since September 2020.

Prior to October, Far East Asian prices had held the advantage since mid-March (the differential peaked at $375 per ton in May). The widest price advantage recorded for Far East Asian prices was nearly 16 months ago, at $847 per ton in September 2021.

Italian Hot-Rolled Coil

Italian HRC prices increased by $3 per ton WoW to $750 per net ton ($827 per metric ton) this week, and were $28 per ton higher month on month (MoM). After adding import costs, the delivered price of Italian HRC is approximately $856 per ton.

Domestic HRC is now theoretically $35 per ton higher than imported Italian HRC, a $47 per ton reversal WoW when US HRC was $12 per ton cheaper. One month ago we saw a spread of $52 per ton, favoring domestic prices. In mid-November we saw a spread of $57 per ton, the largest margin in favor of US prices recorded since last March.

Domestic steel has held this price advantage since late October. Before the removal of the 25% Section 232 tariff, the spread just 15 months ago reached $577 per ton in November, the largest in SMU’s data history.

German Hot-Rolled Coil

CRU’s latest German HRC price rose by just $2 per ton WoW to $766 per net ton ($845 per metric ton), and up $16 per ton MoM. After adding import costs, the delivered price of German HRC is roughly $856 per ton.

Accordingly, domestic HRC is now theoretically $19 per ton more expensive than imported German HRC, a turn from a spread of $29 per ton benefiting domestic hot band just last week. Four weeks ago, prices between these regions were $81 per ton apart (with US prices holding the advantage). Domestic HRC had held this price advantage for all but three weeks since late July, and was on a 16-week run.

German HRC held the price advantage for the three months prior to that, having reached a 2022 high of $164 per ton in May. Before the removal of the 25% tariff, the October 2021 spread of $504 per ton was the widest in SMU’s data history.

Figure 4 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.

Notes: 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, domestic steel will deliver faster than foreign steel ordered on the same day.

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% Section 232 tariff on foreign prices from other countries. We do not include any antidumping (AD) or countervailing duties (CVD) in this analysis.

By David Schollaert, david@steelmarketupdate.com