Major steel producers to drop multiyear price deals – bad news for carmakers and suppliers

Lots of steel news for a Monday morning, but let’s start with this one, probably the biggest in my inbox this morning:

just-auto.com

‘There will be no more multiyear contracts,’ said Freek Schut, Corus’ automotive commercial manager. ‘We are now quoting prices on a yearly basis and we are not even quoting for 2006 yet.’

A European supplier executive, who didn’t want to be identified, said that many multiyear contracts that ended last year have already been converted to three- and six-month contracts.

Arcelor has a number of three-year contracts with automakers that end this December. ‘We will renegotiate these in the latter part of this year,’ said Patrick Seyler, Arcelor’s corporate communications executive vice president.

‘Last year’s price movements made us question whether three-year contracts without adjustment clauses were realistic in such a volatile environment.’

The steel maker’s policy has been to have three-year contracts with automakers and yearly deals with auto industry suppliers.

The changes in steel supply contracts will be bad news for automakers as it makes their forward costs less predictable, but suppliers could be worse hit.

Well, is it bad news for everyone else? At first blush, it seems to me over the last 2 years that the “good deal” for automotive was bad news for everyone else. Since such a major component of the steel market was committed to one price, any input cost increases had to come out of the “other guys”, that is to say, little companies like mine. Ultimately, our customers paid that price. Now, if the steel companies are allowed to raise prices for everyone in a timely fashion, like yearly, that should reduce the unreasonably high “speed bumps” that we experienced recently. Or am I missing something? Anyone with more of a background here care to speak up? Use the comment box at the end of the article.

Then there was this article:

Governments thwart steel’s success

Daniel DiMicco castigated world governments who use their power to interfere with the steel markets.

The governments of the world must maintain a level playing filed
[sic], said DiMicco, vice chairman, president and chief executive officer of Nucor Corp., the nation’s largest minimill operator.

“We can compete with any steel company in the world,” he said.

“But we can’t complete with any government. We’ll be a leader in the fight for fairness in trade, and we won’t be alone.”

Brave words. But when even the supposedly free-trade Bush dips his axe into the pot and stirs, how much are other governments going to resist?

He went on to say

the company isn’t blind to the risk of global overcapacity. Overcapacity is largely the result of government ownership and outdated, extremely inefficient facilities, he said.

It is? Where is there such a problem with government ownership? Even in the Ukraine they’re busy privatizing all that stuff, and it’s been done most other places. I can’t think of any government owned steelmakers in North America. Government interference I’ll grant. But ownership? I must be missing something.

Here’s an example of government interference, big time:

China Cancels Subsidies to Iron And Steel Industry They’ve been subsidizing their heavy industry for years. This is one of several reforms, too slow in coming, but still good that they’re coming at all … from Yahoo! Asia News

China will no longer reduce or exempt VAT for enterprises producing special purpose steel, according to a recent decision by the Ministry of Finance and the State Administration of Taxation.

Such enterprises will start paying VAT starting from July 1 this year.

Here is some privately sponsored “market leveling”: POSCO, world’s fifth-largest steel maker, to cut stainless steel output on oversupply

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