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Most 2013 lead contracts use ‘LME-plus’ model

Keywords: Tags  lead contracts, primary lead, secondary lead, lead contract pricing model, cost plus, LME plus, Daniel Fitzgerald


NEW YORK — Lead market participants say that the majority of signed 2013 contracts have used the traditional “LME-plus” model rather than the “cost-plus” model favored by producers, although at least one producer was reported to have signed several deals using the cost-plus model.

One broker said that most London Metal Exchange-based contracts utilized a premium of about 14 cents per pound, adding that one large domestic producer managed to “impose their will” and obtain business using the cost-plus model, which incorporates their production and scrap acquisition costs.

Several brokers and producers told AMM that the LME-plus model was still dominant in 2013 contracts, but discussions were still ongoing with many parties.

“A lot of people are going month by month. I don’t think a lot of the big contracts signed in previous years have been signed this year,” a second broker said.

Contracts for 2013 have been the subject of a stand-off between lead producers and consumers since October, with customers reported to be hesitant to accept producers’ proposed new cost-plus pricing model (amm.com, Oct. 29).

“In the end, a lot of the large companies said, ‘We can’t hedge junk-plus because we don’t know what you’re paying for junks out there,’” the first broker said. “If everybody did it, there’d be no incentive to be competitive anymore. They could just go out and pay $1 per pound for junks and pass the cost along to the consumer.”

Meanwhile, spot primary lead premiums were unchanged in a range of 13 to 15 cents per pound on Friday.

The LME’s three-month primary lead price closed the official session Friday at $2,355 per tonne ($1.07 per pound).

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