By Silvia Antonioli and Ritsuko Ando
LONDON/HELSINKI, May 22 (Reuters) - Finland's Outokumpu is proposing to price alloys in its stainless steel products on a daily rather than monthly basis to reflect cost volatility and to limit speculation over the materials which form most of the price of the high-end steel.
The European stainless steel price is currently composed of two elements, a base price, agreed between the mill and the customer on a monthly, quarterly or longer basis and a monthly alloy surcharge, which today represents the biggest part of the total price.
'We are going to pilot a daily alloy surcharge... A daily mechanism is well tested in other industries, for products such as aluminium,' the company chief executive Mika Seitovirta said during an event organized by the producer for its customers.
'Customers will also get the flexibility to decide whether to fix the alloy surcharge on the day of the order or the day of the delivery.'
The monthly alloy surcharge is calculated using a formula based on the average price of nickel and of other alloys present in stainless steel, for the month before the booking.
With the current pricing mechanism, stockholders and other buyers can guess how the alloy surcharge is going to move before the number is formally announced by the mills and can modify their buying behaviour accordingly.
This has annoyed some producers in the past and led to Luxemburg-based stainless steel producer Aperam to call for a change in the mechanism last year.
Many clients also seemed open to a change in the pricing structure.
'Without doubt the current mechanism leads to excessive speculation and deserves to be modified,' Antonio Marcegaglia, chief executive of Italian steel manufacturer Marcegaglia, told Reuters.
'Today we all have to be speculators rather than industrial players and many clients take buying decisions based not on distribution capacity or customer demand but on the alloy surcharge level.'
The daily system Outokumpu proposed is one way to improve the situation but a second solution would be to reduce the weight of the alloy surcharge on the total price of stainless steel, Marcegaglia said.
Asian producers already offer a daily alloy surcharge which more closely tracks the daily movement of the nickel price, a key element of the charge.
This allows foreign producers to lure more European buyers when nickel prices are falling.
'We believe it will reduce volatility that we have got now in the market, when nickel prices go up and down, and (will reduce the need for) imports, which offer daily surcharge, as we can do the same in Europe,' Ulrich Albrecht-Fruh, president of the EMEA stainless steel coil department of Outokumpu told Reuters on the sidelines of the event.
(Editing by Jason Neely and Keiron Henderson) Keywords: OUTOKUMPU ALLOY/
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