New York: The head of the world’s biggest steel producer on 21 June dismissed the idea of a steel futures market as a way of controlling price volatility.
Instead, Lakshmi Mittal, president and chief executive of Arcelor Mittal, said further consolidation of the industry was a better way of maintaining price and supply sustainability.
Addressing an American Metal Market steel conference, Mittal said price volatility was at the heart of the industry’s poor image with customers and the public. Although it is currently thriving, driven by industrial growth in China and India, for many decades, it was awash in red ink.
“One of the negative impacts of the progress the industry has made is that our customers find it difficult to come to terms with the new pricing levels.
“This is understandable given the pricing model of the past. Volatility of steel pricing has led to sustained periods of low-cost steel, spattered with short periods of exaggerated pricing highs,” Mittal said.
This was one of the reasons why many in the industry were talking about a steel futures market, he said.
Earlier this month, the London Metal Exchange (LME) said it will start trading in April 2008 two steel futures contracts to meet demand for physically deliverable billets.
The exchange will be following the Dubai Gold and Commodities Exchange, which was due to launch its steel futures contract this month, but has delayed it until after mid-year.
“Some customers have expressed a belief that this would be a useful starting point to help establish a more stable pricing market,” Mittal told the New York conference.
“I do not believe this to be the case. Steel futures are essentially a mechanism for financial companies mainly dealing with hedging and futures. It is not a solution for curbing price volatility.”
Indeed, he said nickel, copper and aluminum transactions on the LME have become very volatile with a large amount of transactions are not physically executed.
“Further consolidation of the industry will be a much more effective way of delivering price and supply sustainability,” he said. “We need to therefore work hard to ensure that our customers fully recognize the benefit this will bring.”
This would enable steelmakers to invest heavily in research and development and new product development, Mittal said.
“It enables us to offer global solutions with consistent quality anywhere in the world, whether a developed or a developing market. It enables them to better manage their own input costs.”
He stressed that steel companies had to think more like service companies, which are customer-demand-led and innovative, rather than supply driven.
“We must really focus on implementing this partnership approach with our customers. We must work together, not against each other,” Mittal said.