Stemcor makes first delivery of 12-month physical contract with index-linked pricing

Stemcor, the world’s largest independent steel trader, has started to deliver the first quantities of steel coil based on index-linked pricing to SteelTeam, a Finnish steel stockholder and processer.

Stemcor purchased all the material to cover the full delivery period of twelve months from the producer, in one lot on normal trade terms. Under the terms of the contract signed in July, Stemcor agreed to supply SteelTeam with a predetermined tonnage released in equal monthly installments over the contract period with prices tracking The Steel Index’s (TSI) published monthly averages. Once released, the material will be delivered to SteelTeam’s warehouse and processing facility at the port of Uusikaupunki for serving end-user customers in the Nordic countries.

This contract gives SteelTeam the assurance of regular supplies at prevailing market prices, reducing the risk associated with a future fall in the market.

Jean-Luc Fiorenzoni, Head of Price Risk Management at Stemcor, said: “The extremes of the past year have proved how volatile steel prices can be. Many participants in the industry now agree that the present model is not sustainable and that it is time to shift to a different pricing mechanism offering more flexibility and price protection. Stemcor believes that index-based pricing and associated steel derivatives are a valid solution, as proven with other industrial materials.”

Julian Verden, Group Managing Director at Stemcor, added: “Everyone with an exposure to steel prices has suffered one way or another from price volatility, whether it makes planning difficult or margin management a headache.  Looking ahead we need trusted indices that can be used as a sound basis to price physical transactions. Over time, physical market prices and index prices should converge.”

According to Gustaf Kranck, Managing Director of SteelTeam: “Through indexation we hope to increase our storage levels without increasing our price risk. Working with Stemcor, we will also be offering any customer with a physical contract the option to hedge against future price risk.”