ArcelorMittal is willing to offer contracts to its steel customers for longer than six-months – the extent of its visibility on iron ore costs – if the contracts include an indexation clause, group management board member Michel Wurth told Steel Business Briefing in Luxembourg last week.
With such longer term contracts, the steelmaker and its customers such as auto component manufacturers would agree on supply volumes and a base price. But the final component of the price would be linked to an index, and could be adjusted every six months.
The index could track either the spot market for steel or iron ore, depending on the customer and region, Wurth said. In the USA, steelmakers tend to be more backward integrated, and so more insulated from raw material price volatility, so buyers here may prefer indexing to steel rather than to iron ore, he explained. If indexation is agreed, ArcelorMittal could offer contracts longer than one year.The automotive industry accounts for almost 40% of the steelmaker’s sales in Europe, though globally the figure is 15-20%, depending on the state of demand, he noted.Steel inventories in the automotive supply chain are structurally lower than before the economic crisis, Wurth also told SBB. This is in part as the risks from holding inventories are greater in a volatile environment.
ArcelorMittal can help customers to optimise the supply chain to make it leaner. This could also reduce imports: it is more difficult to optimise inventories with imports, Wurth noted.