NEW YORK Just days after
ArcelorMittal USA LLCs announcement that it would no
longer accept new agreements based on a discounted CRU index
price, a number of major domestic sheet mills have jumped on
board in a commitment to halt erosion of already thin
Dearborn, Mich.-based Severstal
North America Inc. told customers in a letter dated April 17
that in addition to raising minimum prices to $32 per
hundredweight ($640 per ton) for hot-rolled coil and $37 per
cwt ($740 per ton) for cold-rolled and galvanized steel, it
would no longer sell steel against a discounted CRU index
"Over the past few months,
Severstal has been reviewing current pricing methods, including
their effect on our customers," Tom Marchak, Severstals
vice president of commercial, said in the letter. "We have
found that discounts off a CRU indexed price do not always
reflect market conditions."
While the company said its
contracts for 2013 will be honored, it said it will "no longer
consider agreements based on a discounted CRU price" going
Charlotte, N.C.-based Nucor
Corp. will also no longer enter into "any type of discounted
index-based contracts," according to an April 18 letter to
contracts have not demonstrated an equitable return for the
commitments Nucor makes to (its) contract customers," Nucor
Nucor, which said it will honor
its existing contracts, said that it will offer firm
price/volume contracts up to six months in duration but said it
will only consider index-based contracts without a discount
when pricing off an index is required to meet competitive
The moves by Severstal and Nucor
follow ArcelorMittal USA LLCs leading announcement
earlier this week that it would no longer enter into new
agreements based on a discounted CRU following months of
mounting frustration against the now commonplace discounts
amm.com, April 16). In January, the integrated
steelmaker said that it was raising sheet prices, attributing
the need to act to "market manipulation" and discounting off
the index (
amm.com, Jan. 23).
Other steelmakers seem to be on
board as well, even if they havent released formal
letters declaring as much. During an earnings call April 18,
Mark Millett, president and chief executive officer of Steel
Dynamics Inc., said that his company has been trying to resist
discounting to CRU and that the industrywide move away from
discounting is beneficial. "I think (for) the industry in
general, its a very positive sign," he said.
But market participants said
that for mills to move away from discounting off the index,
strict discipline will be required, even as certain
larger-tonnage and end-market consumers will likely put
additional pressure on mills said to be hungry for orders.
"Theres still not enough
strength, not in todays market," said one Midwest service
center source. "The mills are saying: Were not
going to do the 5 percent under CRU deal anymore, but
were desperate for orders. I dont think this
will work until capacity gets taken offline and there
isnt a mill thats willing to fall under the sword
right now to take down capacity."
Others agreed, noting that mills
will have to look longer term and possibly take short-term
losses to make this stick.
"Everyone in this business uses
the index price minus a percent or two. Mills have tried to
hold the line, but the question will be if theyre willing
to (potentially) lose large pieces of business theyve had
for many years by not extending any CRU deals," said one mill
source. "Are mills going to enforce it now?"
Others added that ending
discounting may also help boost margins, particularly as a
number of market participants say that sheet hikes since the
start of the year have effectively lost momentum.
"The bigger boys always had a
minimum of 5 percent (discount) ... which is a huge chunk,"
said a second Midwest service center source. "If they only
knocked off the discounts ... then mill margins wouldnt
be hurt so much. They also wouldnt need to be messing
around and looking foolish with more price increases."