In an effort to clear up waters which may have become slightly “muddy” over the past couple of days SMU contacted a number of our contacts at Severstal NA to better understand their recent steel pricing change as it relates to their contract customers out of their Sparrows Point facility. Many in the trade press have begun calling the move an iron ore surcharge – since the intention of the change in pricing is to collect some of the iron ore spot price increases which the Sparrows Point facility is exposed to.

The Severstal NA spokesperson, Elizabeth Kovach, told SMU in an email statement: “…we are confirming an increase of $125 per ton for shipments to non-indexed contracts for Severstal Sparrows Point products effective June 1, 2010. This increase partially offsets the significant escalation in raw materials costs, which have increased in the range of 120 percent this year alone.”

SMU pressed the company spokeswoman for clarification and we received the following, “Each Severstal facility, as well as each steel company, is confronted with a unique materials situation. Sparrows Point relies on spot-market raw materials and is subject to the escalation in the cost of these materials. Severstal is unable to mitigate the impact of raw material price escalation at Sparrows Point.”

It was long after another trade publication published an article on the Severstal “iron ore surcharge” that SMU began receiving phone calls from concerned Sparrows Point customers – as the plant is capable of producing hot rolled, cold rolled, galvanized, Galvalume and Tin Plate. Where all of these products affected? How will it impact me?

We have attempted to answer those and other pertinent questions utilizing our sources. What we discovered is Sparrows Point order book has a fairly significant order book in the Tin Plate (or tin mill) business which are on long-term (annual) fixed-price contracts not tied to any formula or index.

SMU’s understanding based on our sources there are not any hot rolled, cold rolled, galvanized or Galvalume customers which fall into this “iron ore surcharge” category. Secondly, no one buying on a spot market basis will be impacting by the iron ore “up charge”.

matter of time before some form of iron ore and/or scrap surcharge for both contract and spot customers will become commonplace. This is something buyers and executives within the steel community need to be aware. There are discussions on-going.

According to information in an American Metal Market from last evening – U.S. Steel and AK Steel have reported collecting some form of iron ore surcharge on a portion of their contract order book.

Iron ore is just one more thing each of us will need to watch on a regular basis as we try to make sense of steel prices and trends in the market. Stay tuned to Steel Market Update for more information as it becomes available.