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Sheet hikes seen influencing contract talks

Keywords: Tags  Flat-rolled steel, spot pricing, steel contract pricing, Steel Buyers Forum, Institute for Supply Management, inventories, Corinna Petry

CHICAGO — Flat-rolled steel buyers are welcoming the latest price increases because they said it provides a better base from which to negotiate 2014 fixed-price supply contracts.

On the spot market, however, lead times are short, the majority of service centers are keeping inventories in a tight range of between 30 and 60 days’ supply, and several buyers said their customers have slowed production.

"We are buying just what we need; nothing has changed in that regard," a source at a Mississippi Valley processor and distributor said. "I have a 45-day inventory. Lead times are short so there’s no reason to keep more."

A few producers have begun "to mention what they want to do with firm, index-based pricing and we’ve received requests from customers to quote them with an index-discounted fixed price for three, six and 12 months," he told AMM. "At least one large manufacturer has mill quotes that actually do include index-based less a percentage. (Producers) said they won’t do it, but they are doing it for end-users."

Supply deals won by large original equipment manufacturers likely won’t be extended to service centers any longer, he believes, because producers lost money discounting steel on orders of virtually any volume.

"The fourth quarter is quoting time for new and existing automotive business in 2014," an upper Great Lakes distributor source said. As for the latest announcements of $30- to $40-per-ton increases, "we’re not sure how much will be absorbed in the spot market, but it creates a stronger environment for us to quote."

A Midwest buyer of heavy-gauge steel said equipment builders have slowed down and "pulled back their forecasts. We have a very large inventory so I don’t think we’ll be purchasing much in the fourth quarter. There is an overabundance of plate, which will keep prices low and competitive."

A second Great Lakes buyer noticed a firming of spot tags. "It seems prices defied all the rules lately. There was a wide disparity between mills; a gap had opened in the market," but that meant customers moved their orders around, he said. Immediately before the announced hikes, "the low end was $620 and the high end was $660 (per ton)."

An Institute for Supply Management Steel Buyers Forum survey shows the proportion of steel buyers who reported having more than two months of inventories jumped to 26.7 percent last month from 17.6 percent in August, its highest level since December. Sixty percent of buyers said they’ll maintain current inventory levels over the next six months while the rest plan to reduce stocks.

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