Service Centers Frustrated as End Users Balk at Paying Higher Prices

A second service center located in the Mid-South told us during a phone conversation, “The question is how much are the OEM’s willing to give. They are going to fight any price increases like hell.”

In the Chicago area we heard from a service center who told us, “The buyers are digging in their heels. We’ve got a number of customers who are waiting and there is no logic behind it.” They went on to tell SMU they had offered roll-over spot prices from last month and their end users have been holding off on placing any orders.

One of the larger service center groups provided SMU with the following insights into how they were seeing negotiations and the market going forward:

It’s funny; several mills have complained about losing deals for quoting “fair” contract prices – but the winners are being quiet as the majority of reporting says there is discipline. A couple mills have taken obviously tough stands (Severstal & USS), but it seems they are simply sending some of their best customers to their competitors. The misuse of index problem is one that would be great to get resolved, but it seems producers can’t figure which deals hurt and which deals are good. We are disappointed as some of the most problematic programs will continue in 2014.

We asked what was meant by the comment regarding the “misuse of index problem” and we were told, “From a perspective that wants to see prices at higher levels to create profit for distributors and mills, the continuing problems are fabricators to OEM being aggregated to receive to the OEM direct price and, using a previous period average of CRU (or Platts or anything) to set a fixed forward price. This means there are fewer buyers in the market to pay the spot price, and the market can’t get enough momentum to overcome contract transaction prices.”

Another Midwest service center reported that the domestic mills are putting a tremendous amount of pressure on their company to commit to pricing but their end users are not yet willing to make a commitment. They are asking is there more risk to own $640 hot rolled in late 4^th Quarter and hope prices continue to rise, thus making it easier to close 1^st Quarter business, or, do you wait to see if “market fundamentals” come into play?

That seems to be the question of the week…