***HOTLINE: Invoice that

If you thought the pool of 2010 raw materials prices was murky, just wait to you see the state of annual contract steel pricing in Europe.

A fortnight ago ArcelorMittal revealed to Hotline that it was discussing changes it may make to annual sales contracts with several key industrial clients.
The news wasn’t entirely unexpected, given the shift in iron pricing towards more flexible terms.

Last week both ThyssenKrupp and Salzgitter admitted that they were having similar talks.

“Of course we will attempt to pass on the cost burden,” a source at Germany’s largest and arguably most influential steelmaker told Hotline, saying that work was afoot to determine how the company could insulate itself from more flexible iron ore pricing and absorb higher costs.

“So far, no decision has been made,” he said.

Salzgitter also confirmed that it is in negotiations, but refused to make any further comment.

Other European steelmakers were even more reticent, and have done very little to reassure vital consumers in the region like automakers and white goods manufacturers, which have, until now, benefited from yearly pricing.

“The most solid opinion is to avoid six-month and yearly contracts in the future and to negotiate on quarterly base [prices] with automotive and home appliance [markets],” one market player told Hotline.

“Discussions between mills and manufacturers are a work in progress,” he said.

The reality is no one knows exactly what changes are going to be made, and what impact they will have.

“All steelmakers are being forced down the route of more volatile pricing arrangements on the supply side and have got very little choice but to pass it on,” another marker source added, saying that many European steelmakers relied on the competitive advantage of being able to offer stable pricing.

More flexible pricing is a big threat to their business.

“It is ultimately damaging for the steel industry and risks making material less competitive,” he said.