US sheet contract talks wrapping up, but some buyers holding out

US sheet steel contract talks for 2022 were nearing completion for many service centers, but some buyers were still holding out, refusing to give in to domestic mills' new terms.

Multiple service center sources during the week said they were getting close to finalizing outstanding contract agreements for 2022. Buyers faced major reductions in discounts of prices, freight and extras compared with prior years.

Early mill proposals following the Labor Day holiday in early September garnered little enthusiasm from service centers as mills looked to sell the idea of availability, not price, for 2022.

It was still unclear how much, if at all, mills backed off initial index-linked deals at 1%-2% discounts for 2022 deals but multiple buy-side sources said any capitulation was minor, with new agreements resetting to more favorable terms for domestic mills.

A mini-mill source said he was happy with how talks were progressing for contracts as even OEM business that originally dismissed proposals had started signing up over the past week to 10 days.

Higher automotive contract prices

Automotive contracts were also being reset for 2022 at significantly higher fixed prices. One service center source with automotive exposure said he had heard of some cold-rolled coil and hot-dipped galvanized fixed price deals being established near current spot numbers.

"Auto guys rolled the dice on chips last year," the source said, noting they could not afford to have steel being the missing raw material in 2022 as they look to get caught up on production.

Cleveland-Cliffs CEO Lourenco Goncalves said during the company's earnings call Oct. 22 that it was negotiating automotive contracts at higher levels and for more tons.

"There's not such a thing of we're going to supply a few things like exposed parts then not supply everything," Goncalves said. "If we are a supplier of a car manufacturer, we are considering that we are going to supply everything from the most complicated parts, that we're the only ones that can produce all the way down to the easy stuff."

"The microchip shortage has shown that small things can complicate the life of car manufacturer a lot," he added.

Holdouts remain

"I have no contracts signed, will wait and if needed go more import, especially from Mexico," one service center source in the South said. "Mills unwilling to budge on contract terms ... I'll wait or go into 2022 all spot."

Even as discussions remained contentious for next year, he said, domestic mills continued to offer him more contract tons under existing agreements for December arrival.

Another service center source said contracts were not being renewed for 2022.

"It just does not make sense to commit to contracts at 1%-2% discounts," the source said. "I had a different view on this a couple of months ago. Now, inventories are much higher, and our inquiry activity has dropped."

It was "starting to look like I am going to go spot for next year," a third service center source said. "My contract discussions are dead for now."

Some buy-side sources appeared more comfortable with current supply options, particularly with more availability out of Mexico and Canada, as well as import arrivals. The expectation of more domestic availability and lower prices in 2022 as new supply comes online continued to cause apprehension for many to sign up to the less discounted mill terms.