ArcelorMittal USA is calling upon its suppliers to work with them on cutting costs during a time of oversupply and weak demand in the US steel industry, which has seen finished steel prices plunge sharply from 2018 levels.
“We have strong relationships with our suppliers and are working with them directly to ensure strong cost efficiencies given current market dynamics,” Mary Beth Holdford, ArcelorMittal USA’s division manager, external communications told S&P Global Platts Tuesday in an email, after Platts sought further details about a letter sent July 11 to the steel producer’s suppliers.
The letter, signed by Curtis Geissler, vice president of procurement at ArcelorMittal USA, noted the company would implement “a 10% price reduction on all existing price agreements for all purchases issued after July 31, 2019.”
“The domestic US steel industry has entered into a very difficult period, driven by oversupply, uncertainty in the markets and continuing inventory reductions at manufacturers and service centers,” Geissler’s letter began. “In addition to rapidly declining demand, prices have plummeted from 2018 levels. As one of our valued suppliers, we are asking for your help in dealing with this decline.”
The Platts TSI assessment for US-made steel hot-rolled coil closed Monday at $561.25/st ex-works Indiana, up 11.7% after dropping to $502.25/st July 2. The benchmark price, however, is down $359 from $919.50/st a year ago.
A ferroalloys trader said he received Geissler’s letter and believed the steelmaker would attempt to renegotiate with individual suppliers, but he was unsure if it would apply to formula contracts.
Iron ore supplier Cleveland-Cliffs did not get the letter, according to a spokeswoman, who added that it would not apply to them because the raw material contracts between the two companies cannot be undone.
Several other steel sector suppliers were contacted and had yet to respond. A major manganese alloys trader said he did not receive the letter.
“Of course, a consumer can make such a request, but no company has the right to unilaterally change the terms of an agreement,” he added.
Holdford did not provide any further details, citing parent company ArcelorMittal’s quiet period ahead of its earnings report, scheduled August 1.
Geissler’s letter to suppliers concluded “if this process is not acceptable to you, please contact your local buyer to discuss a process to move forward or exit from our supply base.”
Source: Platts