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France - Peugeot considering shift to shorter term steel buying

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Reuters reported that France's PSA Peugeot Citroen, seeing a steady slide in steel prices so far this year, is 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 this year. If the downward trend in steel prices continues to the end of this year when the car maker's current contracts expire, it could change its strategy.

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.

Ms Elizaveta Dmitrieva company metals purchases said that "Sure if you expect the price to go down, you don't want to fix the price at that level. You want to have better opportunities. Yes we are looking at the possibility to hedge as part of preparation for potential market deterioration."

Ms Dmitrieva expected steelmakers also to make an effort to mitigate their own risk of swings in raw materials costs. She said that "It's too easy for steelmakers to just transpose the raw material price increases onto their customers' shoulders. It's not the way we want to proceed. We would like steelmakers to be in charge of their own risk. They know their market better than we do and have the real leverage to mitigate their risk."

She added that steelmakers should be able to better absorb price movements through measures such as hedging, vertical integration or procuring some physical stocks.

Peugeot Citroen has been looking in particular at iron ore, coking coal and steel hot rolled coil derivatives.



Source - Reuters

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