Steel Products Prices North America

2015 Contract Negotiations in the Early Stages

October 9, 2014

2015 annual contract negotiations have begun, according to both manufacturers and service center steel buyers. The next month or two should be quite interesting as the process continues.

Early reports are suggesting that the domestic steel mills may be more “flexible” in their flat rolled steel price negotiations than they were at this point in time last year. Flexibility may be interpreted to mean more flexible when it comes to the use of various steel indices and it can also refer to a willingness to discuss firm fixed steel pricing not tied to a specific steel or scrap index.

Last year we saw a number of mills initially refusing to quote on CRU indexed based contracts. This was in response to a mill-induced practice of applying discounts against CRU pricing which means that steel buyers were able to buy contract at prices below spot.

It was this position (trying to eliminate CRU index based contract and discounted contracts) that caused a number of buyers to move toward offshore sources and away from the CRU minus deals that were no longer in favor at their domestic suppliers. A number of buyers went from contract buyers into the spot market for the same reason.

We have heard from our steel buyer sources that at least one mill who was adamant last year regarding not using the CRU index as a basis for 2014 steel price adjustments has reversed course and is now considering using CRU as an option. One steel buyer pointed out to SMU, “Nucor is willing to talk about CRU as an index although I haven’t seen their quote as of yet. So far the discussions have gone fairly well but too early to say if it is equal to or better than last year.”

We have heard from our sources that at least two mills are floating the idea of firm fixed pricing for 2015. Although the starting points around $645 per ton for hot rolled coil are at a premium to the 2015 forward curve which the CME is currently referencing as $628 per ton. (As a side note: For those interested, the CME hot rolled coil (HRC) forward curve is updated on the home page of our website daily.)

We have heard mixed responses to the initial offers being floated by the domestic mills. There are a number of buyers who are interested in the latest fixed price offers out of one of the integrated steel mills as well as the offers out of one of the mini-mills who is proposing that prices be adjusted based on #1 busheling which the mill has been referencing as $390-$400 per gross ton.

We heard from one large service center, “[Contract negotiations] In progress – still early but significantly large customers seem to be interested in negotiating. Mills willing to use CRU with rebates (a few minus). Nucor still trumpeting Platts, or scrap based offers. Firm fixed is available; question is the levels.”

While another steel buyer pointed out to SMU, “Nucor is willing to talk about CRU as an index although I haven’t seen their quote as of yet. So far the discussions have gone fairly well but too early to say if it is equal to or better than last year.”

A large manufacturing company told us, “Much more flexibility in how to structure contracts this year vs. last. I think all options including CRU index deals are on the table. Firm annual fixed contracts may never work again…the “old” steel folks know what will happen in volatile markets. Should be an interesting Q4…”

We are still early in the process and it will be interesting to watch negotiations as they unfold. With the industry consolidating we have two mills out of the mix: Severstal NA and Gallatin. Those mills are now owned by AK Steel (Severstal Dearborn), Steel Dynamics (Severstal Columbus) and Nucor (Gallatin).