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Some US sheet buyers looking for import leverage in 2022 contract negotiations

Highlights

Contract renewal negotiations progressing slowly

Some domestic mills reported to offer minimal discounts in contracts

US buyers exploring options in import markets

Some US steel sheet market buyers were hoping to grow their leverage against domestic mills in 2022 contract negotiations with imports, market sources told S&P Global Platts.

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US buyers are facing domestic mills hungry to reset contracts in more favorable positions after negotiating many 2021 contracts when prices were just starting to rebound from multi-year lows last year. The daily Platts TSI US hot-rolled coil index is up 296% compared to a year ago when many 2021 contract discussions were just beginning.

Currently, domestic mills are in a position of strength to begin negotiations. Buy-side sources have said early indications from mills have been index-linked contracts with limited to no discount and even the idea of an index plus a premium.

After mills took it on the chin with many contracts discounted by a fixed dollar amount in 2020 when prices crashed to multi-year lows, thereby increasing the discounts to a larger total percentage of the overall price, they looked to percentage-based discounts to keep the relative discount to spot prices consistent. However, steel prices surged past previous all-time highs in 2021 as demand recovered from virus-related disruptions and domestic supply was crimped by outages and capacity cuts.

Many contracts in 2021 were locked in with 5%-6% discounts to index prices which now equates to around a $95-$115/st discount to current US HRC spot prices. The daily Platts TSI US HRC index rose by 25 cents to $1,910.75/st on an ex-works Indiana basis Aug. 26.

The early positioning has left buyers hoping mills will eventually ease from their initial stance but also searching for any sort of leverage with domestic supply expected by many to stay tight into the start of 2022.

One buyer said there is a fair amount of market participants looking to secure some first quarter supply needs in the import market. From his OEM (original equipment manufacturer) customer perspective, it is split down pretty evenly with some saying it is too risky to buy imported material given the record domestic prices and longer delivery times, while others want to "tell the mills to go fly a kite" when they try to offer index-linked deals with no discount.

His offshore orderbook was about twice as large as a year ago, he said.

A service center source said his initial contract discussions were not going well with almost no discount available and mills trying to consolidate order specs for contracts. "They want the same size and specification of coils, rather than shipping small quantities of different ones," according to the source.

"That is fine with me. I will minimize contract and go heavier on imports," added the source.

Other buy-side sources were making similar comments, but it remains unclear if there will be enough imported material to swing leverage in buyers' favor.

US imports of sheet products broke 1 million mt in June, with preliminary July census data showing levels just below that mark, according to Commerce Department data.