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Home > MEPS Steel News - 10.05.2017

THE CHANGING FACE OF STEEL PROCUREMENT


Over the past decade, steel has developed into a truly global industry. The increase in supply from Asian countries has transformed the dynamics of the market. Steel buyers around the world are becoming more adept at purchasing material in international markets. To illustrate this fact, global annual foreign trade in steel has increased by 70 million tonnes over the last five years – with a sales value of US$45 billion, at today’s prices.

The development of internet communication has made it easier to source new suppliers and search out more competitively priced material, for the wide range of steel products produced and sold around the world. Face-to-face discussions between buyer and seller have given way to dialogue via electronic methods.

This form of remote purchasing, together with the recent volatility of steel prices, has resulted in an increase in the need for and use of independently researched data to assess changes in steel selling prices, over the period of contracts. Agreements are often made, between buyer and seller, in which researched index values, obtained from recognised data providers, are used to represent price changes, for a range of popular products, in selected countries.

Independent research organisations, with no connection to buyers or sellers of steel, provide the market information. Price discovery is obtained by the steel market analysts, through discussions with senior personnel in both steel procurement and supply, to obtain an objective view of changing market selling values. Prices and indexes are prepared from the results of the investigations into average monthly selling figures. The results are available from the research company, often online, for use by subscribers to the service.

Using the reported online index figures, both buyers and sellers are able to evaluate the monthly percentage change in the average price of defined steel products, over a selected time span. The results act as reference for the escalation or reduction in the previously agreed price for a specified steel product, over set periods in the supply contract. This is not a new concept but it is becoming increasingly popular because it offers a degree of confidence to both parties that price changes are referenced from an independent source.

Advantages to steel buyers include the ability to agree, with remote suppliers, the percentage change in the cost of steel in a specified region using figures defined by an independent source. It minimises the need for expensive travel to discuss price changes. Steel buyers are also able to incorporate the changing costs of steel into the selling price of their company’s manufactured goods.

Benefits to steel producers derive from their ability to reflect changing costs of raw materials and market conditions into their selling prices over the contract period.

Independently researched average steel prices and indexes, when incorporated in supply contracts, enable both parties to react to actual market conditions over the life of an agreement. This is beneficial to buyers of both imported and locally sourced material. It can prove to be particularly important in volatile market conditions or when steel is purchased from foreign suppliers.

Trading in international steel markets is expected to continue at the current level well into the future.


Author: Peter Fish – Managing Director MEPS International Ltd. May 2017


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