HIKES
IN STEEL PRICES HAVE AFFECTED CONTRACT CUSTOMERS MORE THAN MOST
Over the years, the major EU
steel consumers built up mutually beneficial supply relationships
with local mills and those in neighbouring member states. Typical
customers in this classification include certain manufacturers of
home appliances, chemical and oil drums, radiators, and auto parts.
These companies order on a quarterly basis upwards of 100,000 tonnes
per annum of cold rolled steel. Their requirements include regular
daily or weekly deliveries of pre ordered quantities.
These organisations place the
vast majority of their business with EU mills and usually with local
suppliers. They are almost captive customers of the steel producers.
As such, they also provide a useful base load for the steelmakers
when the market turns down. Historically, for this they obtained
significant price discounts, particularly when the general market
was weak. These were normally eroded somewhat when the market was at
its zenith but they usually remained the lowest priced customers
(excluding the automotive and appliance manufacturers on 6 month or
annual contracts).
Many of these large three
monthly contract buyers have felt let down by the steel producers in
recent years. Some consider that they are being penalised for their
loyalty. Their sources of supply have been reduced through
consolidation within the steel sector. They have chosen not to build
up important relationships with third country steel manufacturers
because of the equanimity for mill and customer from the past
discount structure.
During this year's first
quarter negotiations, most mills insisted on significant rises for
these quarterly contract customers. Considerable pressure was put on
them to accept increases for the second quarter. The amount varied,
dependent upon country of supply. Over the same time period,
distributors, service centres and other significant buyers -
particularly those with strong links to foreign imports were being
offered no price increases in the first trimester and discounts for
period two. Moreover, the rebate for the contract customers had been
eroded in negotiations though 2004. Whereas, their prices, in the
past, fell below the MEPS low values, we now find them often to be
above the bottom figure in our published tables.
