“Steel Imports Into US Surge” – Wall Street Journal, 26 January 2014

Due to a global oversupply and an increase in demand by automakers, importing steel has become the cheaper option for some US steel buyers. The price difference between domestic steel and international steel is widening—the US is becoming more expensive—and has spurred a jump in the number of imports into the US. The average gap between US and China’s steel has risen to $159 per ton. In January 2014, imports reached 3.2 million tons, compared to 2.6 million tons in January 2013, a 23% increase.

Last spring, due to the demand of steel by car manufacturers and the growing construction market, US steel producers increased prices—previously, costs had been fairly low. For example, the current average price for a roll of benchmark hot-rolled coil in the US is $676, while China’s current average for the same product is $540. Steel production in China rose by 7.5% from 2012 to 2013, nearing 780 million tons, seven times more steel than the world’s number two manufacturer, Japan, generated in the same year.

The surplus of steel provoked a surge in prices for big steelmakers, such as the US, Brazil, and Germany. While US manufacturers have been profiting from increased pricing, the mounting number of imports will likely cause these prices to fall.

More producers on the East Coast are now importing steel. Two years ago, a major East Coast steel mill—operated by RG Steel LLC—closed as a result of steep labor costs and reduced demand. Conversely, buyers in the South and Midwest are not importing as much steel, and still purchase their supplies from neighboring mills, which allows them to bypass expensive shipping costs.

The US has always depended on imports; however, that dependency might increase this year. America uses almost 108 million tons of steel per year—25% of that is imported from abroad, while the rest is produced domestically. If it remains cheaper to buy foreign steel, then imports are expected to increase to approximately 30% by the end of 2014. Imports will be the main factor in why US steel prices drop this year. Yet, analysts expect US pricing to still cycle through.

Developed and Written by Dr. Subodh Das and Tara Mahadevan

May 2, 2014

Phinix LLC

Copyright 2013. All rights Reserved by Phinix, LLC.

www.phinix.net    skdas@phinix.net

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