Foreign HRC Losing Price Advantage Over US Product

HRC tags stateside declined $20 per ton vs. the prior week, slipping to their lowest level since mid-February. Domestic prices are now down $290 per ton since peaking at $1,160 per ton back in mid-April, but are down just $5 per ton month-on-month.

Prices overseas have inched up the past two weeks, causing the premium between import and domestic product to tighten.

During the downward cycle at the end of 2022, domestic HRC held a price advantage over imported material for about four months. Repeated price hikes by mills to kick off 2023 ballooned the US premium over offshore hot band by more than $260 per ton.

Domestic hot band is now roughly 11.6% more expensive than foreign material, down from 15.2% a week ago. While it’s still unclear if domestic mills were successful in their latest efforts to increase prices, margins between domestic product and offshore hot band has fluctuated due in part to seasonally slower summer months.

SMU uses the following calculation to identify this 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 east and southeast Asian ports. This is only a theoretical calculation because costs to import can vary greatly, influencing 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 to compare to the SMU domestic HRC price. Buyers should use our $90-per-ton figure as a benchmark and adjust up or down based on their own shipping and handling costs. If you import steel and want to share your thoughts on these costs, we welcome your insight at david@steelmarketupdate.com.

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

As of Thursday, July 20, the CRU Asian HRC price was $526 per ton, up $4 per ton vs. the prior week, but unchanged from levels one month ago. Adding a 25% tariff and $90 per ton in estimated import costs, the delivered price of Asian HRC to the US is approximately $748 per ton. The latest SMU hot-rolled average is $870 per ton.

US-produced HRC is now theoretically $122 per ton more expensive than steel imported from Asia. That figure is down $26 per ton week-on-week (WoW). This is still a reversal from mid-February when domestic HRC had a $13-per-ton advantage over HRC from Asian markets.

Italian Hot-Rolled Coil

Italian HRC prices also moved up WoW, $20 per ton higher to $686 per ton this week, and up $35 per ton from a month ago. After adding import costs, the delivered price of Italian HRC is approximately $776 per ton.

Domestic HRC is now theoretically $94 per ton more expensive than imported Italian HRC. That spread is down $40 per ton WoW but still represents nearly a $106-per-ton reversal compared to just four months ago when US HRC was $12 per ton cheaper than Italian hot band.

German Hot-Rolled Coil

CRU’s latest German HRC price increased by $15 per ton WoW to $692 per ton, and is up $9 per ton from a month ago. After adding import costs, the delivered price of German HRC is roughly $782 per ton.

Domestic HRC is now theoretically $88 per ton more expensive than imported German HRC. That’s down $35 per ton WoW, but a swing of $117 per ton given that German hot band was $29 per ton more costly than domestic HRC mid-February.

Figure 4 compares all four price indices. The chart on the right zooms in to highlight this year’s decoupling of US and offshore HRC prices.

Notes: Freight is an important consideration in deciding whether to import foreign steel or buy from a domestic mill. 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. It’s also important to factor in lead times. In most markets, domestic steel will deliver more quickly than foreign steel.

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