Reuters reported that France's PSA Peugeot Citroen, seeing a steady slide in steel prices so far this year, said it was considering moving from long term contracts to a spot market linked pricing formula to buy steel, which it could supplement with hedges in the derivatives market.
Peugeot Citroen has bought steel mainly on six-month and 12 month contracts at fixed prices in 2012.
Steel prices have slid in the past few months as the euro zone debt crisis and sagging global economy have depressed demand, which has combined with a glut in supply.
Peugeot Citroen would benefit from short term pricing mechanisms as long as prices fall because they would more quickly reflect the lower prices.
The company could then use derivatives to mitigate the risk the steel market could reverse direction and prices rise.
Peugeot Citroen has been looking in particular at iron ore, coking coal and steel hot rolled coil derivatives.
Steelmakers should be able to better absorb price movements through measures such as hedging, vertical integration or procuring some physical stocks.
Source - Reuters