In a new report, JPMorgan analyst Michael Gambardella takes a look at the shrinking U.S. price premium on steel versus China. According to the report, the hot-rolled coil (HRC) spread has dipped to only $54/ton, its lowest level in three years.

“The main drivers of the narrowing are higher Chinese steel prices, which reflect a pickup in demand and lower supply with low steel output and inventors levels,” Gambardella explains.

The U.S./China HRC spread was as high as $233/ton as recently as 2014. Chinese steel prices have spiked 33 percent in the past week from $300/mt to $400/mt. A pickup in Chinese steel demand and improving sentiment are the primary reasons for the spike. In the U.S., JPMorgan expects that steel prices will continue to climb throughout 2016 due to domestic supply cuts and reductions in imports.

Gambardella notes that, since China accounts…

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