http://agmetalminer.com/2009/05/11/are-steel-mills-shortsighted-in-iron-ore-contract-negotiations/ Sourcing & Trading Intelligence for Global Metals Markets Wed, 23 May 2012 01:31:00 +0200 hourly 1 http://wordpress.org/?v=3.3.2 http://agmetalminer.com/2009/05/11/are-steel-mills-shortsighted-in-iron-ore-contract-negotiations/comment-page-1/#comment-21757 End of the Quarterly Iron Ore Contracts(?) †That Was Easy! Fri, 02 Jul 2010 16:02:15 +0000 http://agmetalminer.com/2009/05/11/are-steel-mills-shortsighted-in-iron-ore-contract-negotiations/#comment-21757 [...] a company is in a long term buying agreement and prices drop, buying organizations tend to want to try and re-negotiate (we actually tried to coin a term to cover that practice †‘weaseling’) and when prices rise, [...] [...] a company is in a long term buying agreement and prices drop, buying organizations tend to want to try and re-negotiate (we actually tried to coin a term to cover that practice †‘weaseling’) and when prices rise, [...]

]]> http://agmetalminer.com/2009/05/11/are-steel-mills-shortsighted-in-iron-ore-contract-negotiations/comment-page-1/#comment-8981 Pages tagged "shortsighted" Sun, 24 May 2009 16:46:54 +0000 http://agmetalminer.com/2009/05/11/are-steel-mills-shortsighted-in-iron-ore-contract-negotiations/#comment-8981 [...] bookmarks tagged shortsightedWicked Are Steel Mills Shortsighted in Iron Ore Contract ... saved by 4 others     SonictheHedgehog6 bookmarked on 05/24/09 | [...] [...] bookmarks tagged shortsightedWicked Are Steel Mills Shortsighted in Iron Ore Contract … saved by 4 others     SonictheHedgehog6 bookmarked on 05/24/09 | [...]

]]> http://agmetalminer.com/2009/05/11/are-steel-mills-shortsighted-in-iron-ore-contract-negotiations/comment-page-1/#comment-8090 Phil Dalton Tue, 12 May 2009 02:41:10 +0000 http://agmetalminer.com/2009/05/11/are-steel-mills-shortsighted-in-iron-ore-contract-negotiations/#comment-8090 Steel mills do buy ore on annual contracts (many are locked in for several years with language addressing mutual consent to pricing annually). These annual contracts in the past agreed that the market price would be set in the following year as you have indicated. The raw materials market from ore to zinc is about a year and a half behind the unheard of steel pricing over the past 4 years (ending in Sep 08). If you study how the ore prices have risen since 2004 you will note that prices have nearly tripled under most contracts for ore, coke, coal. Many steel mills are locked in for the next year at these very high prices so they must demand a return to normal profitability across all segments of the steel industry. It goes without saying that the cost of production of many of these raw materials has not risen threefold nor has the non-price inflated cost of making steel. Unfortunately, as the steel market is cyclical and the shortage of supply back in 2002-2003 created an abnormal supply-side pricing which begat profit sharing across all segments (read, coke, coal & ore suppliers saw steel mills making 200-400$/ton and realized that their pricing could be demanded upwards). The opportunistic/luck driven consolidation across the global steel world doomed itself due to spending all the profits on further lateral acquisition rather than supply acquisition; and ignoring longer term plans that watched cash and the inevitable down cycle that we are experiencing now. It has been amazing to work in this industry over the last 15 years and see some of the things I have seen. From carte blanche agreements to deleterious long term pricing contracts to wasted time researching cost savings under the guise of cash flow but at the expense of long term profitability, I've concluded that there are not enough managerial accountants in enough high places. Too many people with their own careers as their top priority, never spending more than a year in a position of authority leaves nobody accountable for failure except those primary stakeholders closest to the manufacturing process. Those in ivory towers can only consume so much steel¦ the rest of the world has to have the means to consume too. Steel mills do buy ore on annual contracts (many are locked in for several years with language addressing mutual consent to pricing annually). These annual contracts in the past agreed that the market price would be set in the following year as you have indicated. The raw materials market from ore to zinc is about a year and a half behind the unheard of steel pricing over the past 4 years (ending in Sep 08). If you study how the ore prices have risen since 2004 you will note that prices have nearly tripled under most contracts for ore, coke, coal. Many steel mills are locked in for the next year at these very high prices so they must demand a return to normal profitability across all segments of the steel industry. It goes without saying that the cost of production of many of these raw materials has not risen threefold nor has the non-price inflated cost of making steel. Unfortunately, as the steel market is cyclical and the shortage of supply back in 2002-2003 created an abnormal supply-side pricing which begat profit sharing across all segments (read, coke, coal & ore suppliers saw steel mills making 200-400$/ton and realized that their pricing could be demanded upwards).
The opportunistic/luck driven consolidation across the global steel world doomed itself due to spending all the profits on further lateral acquisition rather than supply acquisition; and ignoring longer term plans that watched cash and the inevitable down cycle that we are experiencing now.
It has been amazing to work in this industry over the last 15 years and see some of the things I have seen. From carte blanche agreements to deleterious long term pricing contracts to wasted time researching cost savings under the guise of cash flow but at the expense of long term profitability, I’ve concluded that there are not enough managerial accountants in enough high places. Too many people with their own careers as their top priority, never spending more than a year in a position of authority leaves nobody accountable for failure except those primary stakeholders closest to the manufacturing process. Those in ivory towers can only consume so much steel¦ the rest of the world has to have the means to consume too.

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