Customers and Futures

SBM Viewpoint

Steel prices over the past four years have been heavily impacted by raw material price volatility making fixed price negotiations with producers difficult.

Customers often need to provide forward price commitments on their products to their customers and would like to reduce their exposure to market price volatility.

Steel futures contracts can offer an alternative means for customers to lay-off forward price risk. The mill can serve the customer by providing market-indexed priced agreements. This contracting approach allows the customer to use steel futures contracts to stabilize forward prices in lieu of the mill providing a fixed price contract.

Customers are likely to prefer making longer-term commitments for physical steel delivery from mills that offer reliable product and shipping performance. Steel futures contracts provide the customer the means to fix their forward price in the quantity and timing of their choice.