NEW YORK London-based data provider CRU International Ltd. agrees that the widespread practice of buying and selling steel at a discount to CRUs published index price has "distorted the very premise of indexed-based pricing" but continues to stand behind the validity of the index itself, according to an open letter to the market dated April 19.
The lettersigned by head of operations for CRU Indices Glenn Cooney and principal consultant for steel, and editor of CRUs monthly sheet report Josh Spooresis in response to news that a growing number of domestic sheet mills have vowed to stop selling steel at a discount to the published CRU number (amm.com, April 18).
According to Cooney and Spoores, CRUs steel sheet index has seen a lot of changes in the ways market players have incorporated it into their contracts since its original launch in 1980.
"More recently an era of CRU-minusa practice of offering a percentage discount on the CRU index in the contract marketemerged. Arguably, this type of arrangement has distorted the very premise of indexed-based pricing: that it should be equitable to both parties," they wrote in the letter. "The announcements this week that several mills will move away from discounted CRU deals was unsurprising to many well-informed market observers."
The push to move away from CRU-minus pricing deals was led by Chicago-based ArcelorMittal USA LLC, which on April 16 announced that the companys sales team would no longer enter into any new agreements based on a discounted CRU (amm.com, April 16). Dearborn, Mich.-based Severstal North America Inc. and Charlotte, N.C.-based Nucor Corp. quickly followed suit, announcing separately their own plans to halt discount sales.
The question now, market sources say, is whether this signifies the mills are also looking to move away from pricing off an index altogether, rather than just distancing itself from the discounting element.
Cooney and Spoores contend that isnt the case. "We feel it is prudent to distinguish to the wider marketboth physical and financialthat the announcements were merely a defiant step by domestic producers against the practice of discounted indexed-based deals and not an attack on the CRU index itself," they wrote.
However, some said language in the mills letters on that issue is less than clear.
"If a reference to the CRU index is required, we will use CRU as a minimum price only," ArcelorMittal wrote, a line that some in the market have interpreted as a preference not to price based on an index at all. Similarly, Nucor said its sheet mill group "will consider index-based contracts (without discount) only to meet competitive situations."
Neither Cooney nor Spoores were able to provide further comment by deadline.