NEW YORK Mounting frustration with the
CRU-minus-discount approach to flat-rolled steel pricing and
what many U.S. mills perceive as the practices erosive
effect on sales margins erupted in full force April
16 when the commercial leadership of ArcelorMittal USA
LLC told the companys sales team that it will no
longer enter into any new agreements based on a discounted
We believe this pricing mechanism has become more
prevalent and is causing an unnatural ceiling price, and
therefore is undermining our ability to collect a fair market
value for our products, the leadership said in an
advisory seen by AMM. The Chicago-based steelmaker
went on to say that for the balance of 2013, it will offer
firm price agreements for monthly, quarterly and six-month
durations that assume volume and price is sustainable
for all parties.
We will consider competitive situations on a
case-by-case basis for longer-term agreements, but it is not
our intention to enter into agreements based on a discounted
level to CRU, the advisory stated. If a reference
to the CRU index is required, we will use CRU as a minimum
CRUs U.S. hot-rolled coil index assesses steel sheet
prices in the Midwest on a weekly basis. The company also
publishes cold-rolled coil, hot-dipped galvanized coil and
steel plate price indices for the Midwest. According to
London-based CRU, more than 50 percent of mills direct
shipments of steel sheet are priced against CRUs U.S.
Midwest price indices, representing some $20 to $25 billion
worth of business each year.
ArcelorMittals move to discontinue its use of the
indexat least in partcomes at a time when
hot-rolled coil prices have slipped to around $600 per
tonand in many cases
lowerwith AMMs average transaction
price at $590 per ton f.o.b. Midwest mill Tuesday. With some
mills facing a breakeven point at right around that mark, any
discounting below published index prices could mean a
narrowing of marginsor even a fall into loss-making
territoryfor some mills.
Market reaction to the action was mixed.
They (ArcelorMittal) have been the most vocal about not
liking it (pricing off a discount to the CRU hot-rolled coil
price index), a Mississippi Valley sheet processor told
agree with their assessment, and I would like to see
everybody follow them.
I dont think anybody should be shocked by
this, a Midwest distributor and processor said.
They have been beating this drum since the beginning of
the year, even before. And we have been hearing the same
message from the other mills. It is very pervasive and
consistent throughout the industry. This type of pricing
program and structure is hurting them all.
This isnt the first time ArcelorMittal has expressed
its concerns with the current pricing format. In January, the
steelmaker said in a letter to customers it was raising
hot-rolled coil prices immediately, attributing the need to
act to market manipulation and discounting off
the index, which ArcelorMittal said at the time had a
dampening effect on industry spot prices
(amm.com, Jan. 23).
The key question now is what this will mean for existing
contract structures, the Midwest distributor and processor
said. Are they going to be trying to restructure
existing contracts? I cant imagine that, he said.
There would be quite an upheaval.
Now that this has started, more (mills) could jump
in, a top executive with a national metals distribution
chain said. The real question is what happens when they
have to stand up to consumers like John Deere or
An ArcelorMittal spokeswoman declined to comment further on
the move, noting that we do not discuss pricing in the
public or with the media.
Corinna Petry, Chicago, contributed to this story.