Steel Products Prices North America

2015 Flat Rolled Steel Contract Negotiations Update

October 12, 2014

Steel Market Update recently published an article about the beginning of the 2015 non-automotive flat rolled steel price negotiations between end users, service centers and the domestic steel mills. We continue to gather information regarding the status and tone of the negotiations and we are learning that 2015 will be much different than what transpired this time last year. One of our large service center sources provided some perspective in an email received earlier today:

“John, we are seeing some very different behaviors from mills as contract discussions for 2015 move into higher gear.

Interestingly, there are some common themes emerging:

1) Mills are saying that with the recent acquisitions, they have more volume to fill in 2015 vs. 2014 (AK, AM, Nucor, SDI. – really all except USS), and therefore there’s increased pressure to do so.

2) 2014 saw the % of mill order books tied to contracts drop significantly from 2013. Therefore there are much fewer contracts in place to “renew,” and mills are starting from a much lower level of loyalty in their book.

3) Raw material cost forecasts: mills are acknowledging that the outlook for raw materials in 2015 is for continued weakness, removing any cost-push element.

4) Mills realize imports present a real threat for 2015 volumes.

So, given the above, we’re seeing mills much more flexible in discussions. There is likely not going to be a return to “Index minus” deals, but we are seeing index deals with discounted starting prices (3-5% from today’s prices, depending on index used). There are back-ended rebate offers (quarterly and annual), 6 month and annual fixed price offers, some looking at using Scrap (with collar) as basis as well.

Bottom line is, there seems to be a much more cooperative atmosphere this year so far, which is a welcome development.”

SMU Note: Looking at hot rolled as the base product for all flat rolled, the two indexes most often used for contract adjustments are: CRU ($651 per ton) and Platts ($650 per ton). Steel Market Update requests that our index not be used in any contract negotiations due to the size of our company and our personal involvement in the collection of data (we do not use mill generated transaction prices in our indices). SMU hot rolled coil average for this past week is $650 per ton ($32.50/cwt).

Most often cold rolled and galvanized base prices average $100 to $120 per ton above the hot rolled base number ($32.50/cwt + $5.00/cwt or $6.00/cwt).