In the annual negotiations for long-term steel supply contracts, the position of steelmakers and big customer sectors will be wider apart than in previous years, and each side has good reasons for its stance.
Mills find that, in view of increased production costs, driven by raw materials as well as energy prices, steel prices for 2024 need to be higher than those of a year ago; or at least not any lower. Back then, many deals for hot rolled coil were signed at around €800/tonne ($854), with early deals securing a lower price, and later deals a higher one.
Although annual contracts go by a year-to-year comparison logic, the spot price of the time does have an influence. Coincidentally, one year ago, spot levels were similar to now, in the mid-€600s. The big difference is that many anticipated a surge back then, which did indeed materialise with a vengeance, pushing negotiated figures up during the talks.
At present, however, hardly any buyer sees cause to assume a major increase given the poor outlook for demand. Against that, mills are insisting they must lift prices because of hiked production costs. “We need to get more [than last year] to cover our costs, and the automotive buyers need to understand that,” a mill manager told Kallanish at the Blechexpo trade fair in Stuttgart last week. “We definitely cannot go lower.”
“Everybody is aware of the pressure from risen costs for mills; that is out of the question,” a director of a service centre concedes. But the production costs on the one side stand against a lack of demand from steel-using segments.
One manager from a German processor that buys on half-year contracts says that increases are totally out of the question, and he dismisses even the perspective of prices being roll-over. By June, the massive spring surge had slackened, and spot prices were on the way down, then passing the mark of €750. Half-year contracts then would have been mostly around €800-850/t. On that basis, “we want to see a three-digit reduction”, the processor’s manager says.
A manager of a Benelux distribution group adds that customers prefer shorter contracts, of a half or quarter year, because “they want to go only as far as the eyes can see”.
Unsurprisingly then, “talks this year will be very hard”, the mill manager concludes.
Christian Koehl Germany