Discipline shown by U.S. mills to move away from index-based
discounting has pushed some flat-rolled steel buyers to
source offshore material as a way to hedge against potentially
higher costs in 2014.
U.S. steelmakers have
remained steadfast, refusing to extend contracts offering a
percentage deal off the CRU index (
amm.com, Oct. 23).
As a result, some
service center buyers, wary of an uncertain steel market
coupled with cut-throat competition downstream, told
AMM they are opting to hedge with increased buying
The implication is
that even though U.S. steelmakers will likely achieve higher
prices next year, which would improve margins, volumes could be
thinner due to business going offshore.
"Prices are clearly
going up and buyers are beginning to scramble a bit," one
trader said. "The mills are gambling, and correctly so;
theyre holding firm (on not discounting). But, customers
on the other hand are protecting themselves by placing business
offshore at a guaranteed price. Ultimately, the big loser could
be the mills."
A number of trading
houses have reported that service centers have become more
interested in offshore material, with some even asking for
six-month fixed-price dealsplacing material in warehouses
as a means to hedge against higher domestic pricing in
Others suggested that the increased interest in offshore
material could be a change in buying patterns, as service
centerswithout the option of a discount anymoremay
choose to move more of its business into the spot market, and
be more open to imports if the price differential makes
"There is no doubt
that first-quarter imports will increase and the domestic mills
will start crying as they always do," a second trader said.
"But I think what matters is the price differential. Foreign is
just significantly cheaper because domestics are raising their
He cautioned, though,
that taking six-month contracts is not very common "because you
end up tying up an awful lot of money and the risk is all on
But, if a glut of
imports begins arriving early next year, it could cause
domestic players to become wary, wondering whether trade cases
should be filed due to a sudden jump in foreign material
One mill source said
the offshore threat is "definitely" part of the conversation
while negotiations are under way.
However, not all
buyers will be running to offshore material, a third trader
"No one is rushing to
buy imports because of CRU," he said. "Buyers want to keep
relationships with mills, but buyers have a balanced approach
in purchasing. If imports are competitive, theyll buy a
certain percentage offshore. And definitely, there will be a
little bit of pickup for next year."
Buying offshore will also mean that service centers and
end-users will need a guarantee for a certain quality of steel,
which could be an issue for any foreign material. In addition,
the bet on imports could be tricky, as buyers have to believe
they will ultimately benefit and receive product lower than
where domestic indexed pricing will be next year.