Search Back Issues

Steel Pricing: Mills Spurn CRU-Minus Contracts

By on
Three steel mills—ArcelorMittal USA, Severstal NA and Nucor—announced last month that they planned to move away from CRU-minus based contracts in future negotiations with customers. It is important for service centers to understand what the mills are trying to accomplish.

What is a CRU-minus contract? The steel mill and end user or service center agree to use the CRU indices— which calculate the current spot index or average on various products, such as hot-rolled coil—as the basis of their price negotiations. CRU’s price assessment is similar to that of Steel Market Update (SMU), which looks at spot sales for future delivery without factoring contract pricing into the equation. The two sides, mill and customer, then agree to an appropriate “discount” off of the CRU spot price. Over time, these discounts have grown and can be quite substantial. Discount levels of 3 to 8 percent have been reported to SMU during conversations with industry buyers.

The sheer number of these CRU-minus contracts has grown significantly in recent years. In the process, service centers have become more aware of the price levels being negotiated on contracts and have begun to use those negotiated price levels as the starting point for spot price negotiations. When domestic mills agree to “spot” sales using the CRU-minus number as a starting or reference point, they essentially cap their ability to raise spot prices.

Domestic mills want return to fixed pricingThe complaint made by leading mills is that the CRU-minus deals end up being non-representative of the true market pricing. This could be due to the “lag time” that exists in many of these contracts, as well as other factors. Instead, at least two domestic mills—ArcelorMittal USA and Nucor—want to return to fixed pricing with a maximum length of six months. Severstal NA, in its announcement, was less committal to specific contract pricing arrangements when it said “...we will continue to work with all our customers to identify pricing mechanisms which best serve our mutual needs.

”Nucor, in its letter to customers, presented its case for moving away from CRU-minus contracts with the following language: “Please be advised that effective immediately, Nucor will no longer enter into any type of discounted index-based contracts, including ‘bucket’ contracts. Discounted index-based contracts have not demonstrated an equitable return for the commitments Nucor makes to our contract customers, such as: providing a longer-term price commitment, assurance of product availability, on-going technical and administrative support, and strategic commitment to the mutual benefit of Nucor and our valued contract customers. Nucor will offer firm price/volume contracts up to six months in duration. The Nucor Sheet Mill Group will consider index-based contracts (without discount) ONLY to meet competitive situations. Contracts will require an identified end user, specified volumes, and narrow volume tolerances. Existing contracts will be honored.”

It is important to note that in no case did any of the mills question the validity of the CRU index. In fact, in going back to monthly, quarterly or semiannual contracts, mills and their customers may still need to refer to indices such as CRU and SMU, as well as the CME Group HRC Forward Curve, in order to determine transparent starting and end points in the negotiation process.

“The recent announcements clearly relate to the discounting of the index and not the CRU index itself,” says analyst Josh Spoores, CRU principal consultant. “This is a pretty clear message that if buyers think they deserve to buy at a specific level, they will need to negotiate that position, as mills are no longer in a position to subsidize them. If anything, the CRU index becomes even more useful as buyers and sellers will need it as a benchmark to reconcile their sourcing strategy, as well as in hedging their exposure.”


John Packard is a steel industry veteran and publisher of the Steel Market Update e-newsletter. SMU regularly conducts workshops on hedging and managing price risk with partners CME Group and Crunch Risk. SMU also does training on steelmaking and market fundamentals (Steel 101). For more information, visit

Current News