There's a U.S. election campaign on, so it's no surprise that everyone's talking trade.
As happens every four years, it's been discovered that Chinese manufacturers are solely responsible for hollowing out the U.S. rust belt: "They're killing us, folks," in the words of Donald Trump.
Chinese mills undercutting American counterparts sounds like a great opportunity for anyone in the business of international trade. And indeed, the spread between some Chinese raw-steel prices and their equivalents in the U.S. is the widest since at least 2011, according to Bloomberg News.
Shanghai hot-rolled coil futures currently cost about $387 a metric ton, compared with $625 a ton on Nymex, Bloomberg data show.
Despite all the headlines over the past year about anti-dumping investigations and China's glut, raw steel is pretty easy to import into the U.S. as long as it's the right product. Don't think of making it into paper clips, ironing boards, wind turbine towers, rebar or hand trolleys, which all have their own categories of U.S. restriction.
It's probably also wise to avoid cold-rolled steel, a higher-quality variety that may soon attract a tariff of 210 percent after a ruling by the Department of Commerce last month. But as long as you stick to hot-rolled sheets that are less than half-an-inch (12.7 millimeters) thick , you're basically good with Chinese raw steel.
What about transport? Steel coils are big, heavy and relatively easy to damage, so the cost of moving them around can be prohibitive. Things don't look that way at the moment, though. The cost of booking a Handysize vessel, the small bulk carriers typically used for moving steel across oceans, are close to the record lows they plumbed in February.
Considerably higher freight rates and narrower price differentials in the past didn't stop U.S. imports of Chinese steel that have averaged about 158,000 tons a month over the past five years. Import volumes have been historically low in recent months, probably due in part to a narrowing price spread, which briefly saw Shanghai futures cost more than their U.S. equivalents in late April.
Anyone hoping to make money from this dynamic should probably move fast. U.S. steel traders have noticed the spread, with investment funds last week holding a net short position of 9,274 contracts -- equivalent to more than 168,000 tons of metal. Don't assume that those tariff loopholes will stay open forever, either. After all, there's an election on.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
And, more immediately, other arbitrage traders.
It's typically 2mm-7mm thick, according to the World Steel Association.
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