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News

Index steel pricing in the US will continue in another form

MEPS (International) : 06 May, 2013  (Company News)
The practice of steel purchasing from major steel mills in the US, using discounts from CRU’s published steel price index has been abandoned. This, however, is not likely to halt the use of consultants’ pricing information in the future. The methodology for making the agreements in the past was fatally flawed, according to MEPS.

When MEPS and others started to research and publish steel prices in the 1980s, it was to provide independent information about deals concluded in the American and European markets. It was designed to assist buyers and sellers to reach agreements. The values were not developed to be used as a reference to be discounted for sales to major industrial sectors. It was recognised, at the time, that the automotive industry enjoyed confidential discounts.

In later years, after validating the information, a number of buyers and sellers formalised the use of MEPS data in contracts. It has become popular to utilise the published indexes, or the month-on-month/quarter-on-quarter, percentage changes, as a reference to set new contract prices. This is the case today and the use of this methodology is increasing in Europe.

There is still a need in the US and other parts of the world to avoid lengthy and expensive regular negotiations on steel prices. An index-based system is a common solution. Using researched data from an experienced consultancy company is an accepted practice.

Linking changes in published prices over a given period of time is beneficial for both buyer and seller. It has proved to be valuable in Europe and is now likely to become more extensively used in the United States.

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