ThyssenKrupp Steel USA: 2014 Contracts & Rumor Mill

Steel Market Update has been advised by ThyssenKrupp Steel USA customers that their 2014 contracts will be honored and that the sale of the plant to the joint venture of ArcelorMittal and Nippon Steel Sumitomo Metals Corporation (NSSMC) will not impact those contracts. This includes quarterly, semi-annual and 2014 annual contracts either negotiated as firm prices or tied to some form of index.

From a common sense approach, the ArcelorMittal/NSSMC joint venture will need a base book of orders when they take possession of the mill sometime during the 2nd Quarter 2014. Eliminating contracts does not make sense from a continuation of business relationship basis.

One large service center contract customer of ThyssenKrupp Steel USA advised SMU in an email that their 2014 contracts would not be impacted by the AM/NSSMC purchase.  Here is part of what they told us:

“For what it’s worth, TK advised today that a sale would not affect our 2014 annual contract. Supposedly, only deals that exceed 12 months may be “affected”. Not sure if this info is already being relayed from the buyers to the TK personnel, or how it’s being disseminated.
 
Assuming this info is correct, I’ve felt all along that by the time a deal would close (assuming late springtime soonest), AM/Nippon will be glad to have predictable tons in place via contracts, as a base of volume for them to work from. If they desire to ramp this newly acquired asset to full production, it wouldn’t seem to make sense to come in and tear-up or renegotiate contracts as a starting position. Plus, there may only be around 6 months remaining on contracts when they close a deal anyway. Instead, they can move on to focusing their efforts to secure new volumes, which only makes sense.”

The Mills will Announce a $60 Per Ton Increase Immediately Due to the Sale

There is a rumor in the market that the sale of TK USA will allow the domestic mills a platform from which they can announce a $60 per ton price increase.

Steel Market Update believes the purchase of TK by AM/NSSMC will have a short-term psychological impact on the market and for a short period of time may assist in keeping prices stable for a week, maybe two. Beyond that market fundamentals will most likely take over and prices will move in line with the fundamentals.

When we asked one of the top steel mill commercial people to comment on the rumor the response what I got was “Really? That would be wishful thinking…”

With hot rolled prices approaching $680 per ton ($34.00/cwt) and cold rolled and coated base price levels around $780 to $800 per ton ($39.00/cwt-$40.00/cwt) the mills are already at the higher level of the price range for the past couple of years. We are seeing some modest increases in scrap pricing but other commodities have been relatively flat over the past month. There is supply returning to the market and we are seeing foreign offers being priced at levels where business can be transacted (example: Chinese cold rolled prices at $34.00/cwt-$36.00/cwt effective – meaning extras are included – fob the port of Houston for April delivery).

SMU does not speak for the steel mills so they are free to announce whatever they feel is in their (and their customers) best interest. The last price increase announcements by AK Steel and Severstal in early November for a modest $30 and $20 per ton were not followed by all the mills. Is the timing right for a new round and can the $60 per ton be justified?

ArcelorMittal/NSSMC Has Control Over TK USA

The AM/NSSMC joint venture at the moment is nothing more than an announcement. No monies have changed hands. The purchase must go through government scrutiny by the Department of Justice and the Federal Trade Commission. ArcelorMittal has already informed the marketplace that the earliest a closing could take place would be sometime during the 2nd Quarter 2014.

This means there can be no interaction between the commercial departments of ThyssenKrupp Steel USA and those of ArcelorMittal or Nippon Steel Sumitomo Metals Corporation.

The JV has no input into current prices (contract or spot) being quoted out of TK USA and will not be able to do so until they actually own the mill.