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
Neither Cooney nor Spoores were
able to provide further comment by deadline.