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Flat-rolled steel buyers look for metal offshore

Keywords: Tags  steel traders, indexed base pricing, CRU index, 2014 contract talks, service centers, imports, Catherine Ngai

NEW YORK — 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 (, 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 offshore.

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; they’re 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 deals—placing material in warehouses as a means to hedge against higher domestic pricing in 2014.
 Others suggested that the increased interest in offshore material could be a change in buying patterns, as service centers—without the option of a discount anymore—may choose to move more of its business into the spot market, and be more open to imports if the price differential makes sense.

"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 prices."

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 you."

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 arriving stateside.

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 said.

"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, they’ll 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.

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