Don Hauser: Five things to watch out for heading into steel contracting season

This has been a volatile year for global markets, with already slowing economic growth compounded by the destructive impact of the coronavirus pandemic.

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It’s also been a volatile time for steel prices, too.
After making some gains in May and the first half of June, U.S. steel prices have trended downward since.
On the other hand, the U.S. steel capacity utilization rate has inched upward in recent weeks.
For the week ending July 25, 2020, the rate reached 58.9%, up from 58.3% the previous week. While the rate is still well below 2019 levels, the sector has showed signs of recovery.
While steelmakers shut down quite a bit of capacity earlier this year when the pandemic first started to impact the U.S., U.S. Steel recently announced it plans to restart one of its Gary Works blast furnaces; buyers should keep an eye on similar restart announcements.
There’s a lot to think about in what has been — and will likely continue to be — a volatile time for the U.S. economy.
So, what should industrial buying organizations be thinking about as they head into contracting season?
MetalMiner’s Don Hauser, vice president of business solutions, notes five things to watch out for heading into contract season.

Five things to watch out for this contracting season

  1. Steel availability. Steel mills have taken a lot of capacity taken offline. For example, ArcelorMittal has had a disruption with one of its furnaces. Lead times have moved out and there are already several late orders. If demands picks up, there could be a shortage of steel.
  2. Price spikes. As lead times move out, this would be a great opportunity for steel mills to hike prices, which would be supported by relatively low service center inventories.
  3. What price mechanism should be used? There are several options for contracting steel — spot, fixed, index and scrap, to name a few. As contract time approaches, the steel forecast can help shape which mechanism is the best for your company.
  4. Reduced index discounts. People buying on an index typically get a discount or rebate to that index. With prices and volume lower than last year, it may be a harder negotiation to maintain historical discount or rebate values.
  5. Understand your own forecasted demand. Everyone is looking for volume. If you happen to be in a segment with good volume, use it to your advantage. Increased volume will be rewarded this year.

Do you know which market conditions are best with different steel contracting mechanisms? Check out our best practices on this topic!

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