LONDON Stainless steel producers should sue customers who cancel orders when nickel prices fall, London Metal Exchange chief executive officer Martin Abbott told delegates Sept. 4 at AMM sister publication Metal Bulletins 12th International Stainless and Special Steel Summit in London.
Stainless steel mills charge their customers a monthly alloy surcharge to cover the price of nickel and other raw materials.
Stainless steel distributors, direct customers of the mills, often cancel orders when nickel prices fall to avoid holding material that carries an alloy surcharge based on a higher nickel price.
"Compared with copper, primary aluminium and zinc, there is a lack of contract discipline and that needs to be solved," Abbott said. "There is a simple solution, but its not painless: Someone has to sue a customer. That tends to sort it out."
Some industry participants argued that any mill that cracks down on customers will give its competitors an advantage.
"No one wants to be the first to sue, but producers must stand together on discipline," Abbott said on the sidelines of the conference. "If others say come to me instead, they are perpetuating the problem."
Customers can choose from a range of pricing options available to consumers of base metals, such as copper, he added.
"Customers can get tremendous flexibility and predictability. You can finesse this by introducing flexible pricing, fixed pricing or blends of options that all amount to flexibility and offer an advantage to planning business and reducing uncertainty," he said.
A version of this article was first published in AMM sister publication Metal Bulletin.