Following the Crucible’s recent publication of responses to MMTA Members’ questions to the metals press, the following Letter to the Editor has been received.
Sir,
Please allow me to look at the work of ‘pricing agencies’ through continental European glasses, with reference to Mo in the shape of Ferro Molybdenum and Mo oxide and FeV. The continental spot markets were next to dead in 2015 and are beginning to gain life again.
You may recall that steel products (such as escalators, steel rails, car parts etc.) were in recent years the subject of a number of anti-trust investigations, in many cases leading to expensive sanctions. In response, huge volumes of ‘compliance rules’ have been written, lawyers have taken over and now dictate how we do business.
This, one has to know when trying to understand the criticism (coming mainly from Western Europe) that pricing agencies might shape a market, rather than simply describe it. That the publication of price tables is not only a goodwill service to the market, but a business, can be concluded from the fact that one leading publisher changed to daily pricing of Mo oxide immediately after the LME’s creation of the Mo-contract. The problem was and still is: there is not much to talk about in Europe in relation to Mo oxide powder, and the LME-contract is of no relevance.
The first point made by critics is that Mo oxide powder is hardly used in the steel industry, but industry uses Mo oxide compacted to briquettes, packed in both big bags and drums. Briquetting creates cost and different packing is linked with a difference in cost. The reporter, of course, can try to deduct Mo oxide powder from Mo oxide briquettes, but one should keep in mind that market premiums varied in recent years between more than USD1 and zero – and even those market players interviewed (trader, consumer), can only guess what the premium is – quite apart from the fact that in most cases packing does not even form part of the interview. The cost gap between big bags and drums is about USD 0.05 – 0.07/lb Mo; this is 1% of the prevailing market price of USD 5.30! A grey zone of 1% just for packing?
The critics’ second point relates to the bad habit of showing prices by rolling forward even when the market is dead. If there is no business concluded or traceable, there is no turnover; it is a simple mathematical calculation with the result of zero. Some business in trade defines a specific day as the quotational period, and I can fully understand that a contract party develops mixed feelings when caught in a virtual price. ‘A realistic assessment of the tradable value of the commodity in question’ is no substitute for non-existent business.
The third point raised by critics is, let’s call it smoothing of prices, by cutting off what in the eyes of the reporter is extreme in both directions and does not fit. Markets are extremely volatile and try to find their balance by working out high fluctuations. By cutting these off, a reader would years later get a completely distorted market picture, but also, real business is affected, and this might cost a fortune: concluding at a high or low quotation is risky, if the market is not properly reflected. I remember a buyer in a steel mill, who bought FeV spot at very favourable terms (and the market knew it), and he was subsequently confused to see a higher low than he had concluded.
Sincerely,
Michael Ihlenfeld
Consultant to F.W. Hempel Metallurgical GmbH
