For the past couple of months Steel Market Update (SMU) has been writing about how supply constraints have helped keep flat rolled steel prices level to slightly rising. With the round of price increase announcements made at the beginning of the month of October, we have seen a new found resolve by almost all of the domestic mills to hold the line and collect higher prices.
This may be the result of new management at Severstal NA and at the top of U.S. Steel. The marching orders appear to have been well spelled out and as the month progressed spot prices did indeed rise.
One other reason why the mills are resolute in collecting higher spot prices is we are in the midst of contract negotiations. What makes this year unusual is with but one exception (ThyssenKrupp), all of the mills are insisting on changes to the way contracts have been negotiated over the past few years. The mills no longer want to accept CRU “minus” contracts and are looking to replace them with either firm quarterly or semi-annual contracts or, contracts which start at “spot” numbers (be it CRU or Platts) and any discounts are to be done in the form of a modest rebate provided tonnage and release requirements are met by the customer.
As the month of October ended we found a large number of contract negotiations continuing with one of the conversion mills admitting to SMU that they had not yet closed a single contract.
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