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Hikes in steel prices have affected contract customers more than most

MEPS (International) : 18 April, 2005  (New Product)
Many large three monthly contract buyers have felt let down by the steel producers in recent years and some consider that they are being penalised for their loyalty.
Over the years, the major EU steel consumers built up mutually beneficial supply relationships with local mills and those in neighbouring member states. Typical customers in this classification include certain manufacturers of home appliances, chemical and oil drums, radiators, and auto parts. These companies order on a quarterly basis upwards of 100,000 tonnes per annum of cold rolled steel. Their requirements include regular daily or weekly deliveries of pre ordered quantities.

These organisations place the vast majority of their business with EU mills and usually with local suppliers. They are almost captive customers of the steel producers. As such, they also provide a useful base load for the steelmakers when the market turns down. Historically, for this they obtained significant price discounts, particularly when the general market was weak. These were normally eroded somewhat when the market was at its zenith but they usually remained the lowest priced customers (excluding the automotive and appliance manufacturers on 6 month or annual contracts).

Many of these large three monthly contract buyers have felt let down by the steel producers in recent years. Some consider that they are being penalised for their loyalty. Their sources of supply have been reduced through consolidation within the steel sector. They have chosen not to build up important relationships with third country steel manufacturers because of the equanimity for mill and customer from the past discount structure.

During this year's first quarter negotiations, most mills insisted on significant rises for these quarterly contract customers. Considerable pressure was put on them to accept increases for the second quarter. The amount varied, dependent upon country of supply. Over the same time period, distributors, service centres and other significant buyers - particularly those with strong links to foreign imports were being offered no price increases in the first trimester and discounts for period two. Moreover, the rebate for the contract customers had been eroded in negotiations though 2004. Whereas, their prices, in the past, fell below the MEPS low values, we now find them often to be above the bottom figure in our published tables.

Source: MEPS - European Steel Review

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