Metals Procurers Discuss Strategies, Year Ahead at MetalMiner Forecasting Workshop

• How do you renegotiate contracts when prices are down (assuming a single source is available for a particular item)?
• What should a buyer’s CRU (or alternative to CRU) strategy be for his or her steel buy?

In the discussion of the first question, moderated by MetalMiner’s Stuart Burns, attendees stressed the importance of data.
Bringing data to a renegotiation effort affords a greater level of credibility and increases the chances that a procurement professional will secure that discount he or she is looking for. Included in the umbrella of data is historical data to justify decreases or increases.
“The more data you bring into the process, the more credibility you have as a buyer,” Burns said.
In addition, the group discussed creating a “competitive situation” in the renegotiation effort, using teardown or should-cost models, and deploying correlation studies for certain metallic elements for which pricing data is perhaps not widely available.
In summarizing the group’s discussion, Burns delved into the idea of creating a competitive situation despite a sole-source relationship — an idea that, on its face, might seem contradictory.
“You still have to be able to get a sense as to where the rest of the market is,” Burns said. For example, he said, if you are buying wide coil, try to find out what’s happening in the markets for narrower coil products in order to judge if a supplier is adjusting price points as they should.
In addition, it’s important to split out costs, ranging from conversion costs, to metals costs, to logistics costs (e.g., a rise in oil prices).
In the second group, moderated by Reisman, attendees discussed the merits of negotiating in percentage or dollar terms, alternative contracting methods (for instance, buying from service centers), factors that determine or influence a percentage of premium or discount to CRU, and the pros and cons of scrap indexes.
Another focus of the discussion was the concept of a “portfolio” strategy, meaning a mix of spend via long-term buys, short-term buys and spot buying (particularly in a falling market, thus lowering a buyer’s average price per ton).
In terms of factors influencing premiums or discounts to the CRU, attendees listed: volume, whether one is purchasing from a service center or a mill and SKU proliferation, among others.
“The more consolidated you are, the better position you are in negotiating that CRU number,” said Reisman, summarizing the group’s discussion. “But also, mills are very interested in your adders because they make money on your adders.”
MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel
In addition, a good program for selling back scrap on the back end can be a useful tool in negotiating CRU discounts (particularly in the automotive sector).
MetalMiner’s second Forecasting Workshop of 2019 is scheduled for Aug. 7 – reserve your spot today.