CRU Steel price assessments - policy document

Introduction

The use of independent assessments of steel prices has increased dramatically in recent years.  Traditionally such price assessments have been used by physical buyers and sellers as a means to benchmark their recent transactions.  Whilst in some instances they are still mostly used in this way, price assessments are now increasingly being used by both the steel industry, and financial market participants in other ways.

The growth in the use of independent assessments of steel prices has been particularly the case since 2004, reflecting the significant increase that has been observed in steel price volatility.  In some markets, independent assessments of steel prices are now being entered into “variable cost contracts”; they are being used as the “trigger points” for surcharges; they are being used in the physical contracts between steel mills/service centres and their customers; and future contracts such as CME's US Midwest Domestic Hot-Rolled Coil Futures Steel Contract.

If you are interested in receiving sample prices or becoming a data provider, visit www.cruindices.com

The CRU approach to developing steel price assessments

CRU has a policy of developing its assessments of steel industry prices in tandem with how they are being used by both the physical and financial communities, and also with the type of price data available.  This evolutionary process has so far resulted in three “families” of CRU steel price assessments.

Currently, the majority  of CRU’s steel price assessments (over 120) are classified as “Level 1.0 price assessments”. The main features of CRU’s “Level 1.0 price assessments” are the following:

  • Data providers submit a single price, representing the average that orders have been placed at within the defined “survey period” – usually the previous week of business.
  • Data providers share their data submissions during telephone surveys with CRU Steel Team analysts.
  • CRU Steel Team analysts attach a weighting to each price submission to arrive at final price assessments.
  • Price data is collected - and assessments are published - on a once per month basis.

CRU’s “Level 1.5 price assessments” include those which are starting to be used in physical contracts, and some financial contracts that may exist.  For these assessments, the data collection/calculation procedures have been enhanced:

  • Data providers will submit data electronically by CRU Indices, rather than by telephone survey.
  • Data providers submit an average weighted price for their spot transactions placed in the preceding week for forward delivery
  • Data is collected - and assessments published – on a weekly basis.

CRU is currently providing three “Level 1.5 price assessments” for Hot-rolled coil, Cold-rolled coil, Hot-dipped glavanised coil in Italy.

CRU’s “Level 2.0 price assessments” include those which are already used extensively in physical contracts, and any financial contracts that may exist.  For these assessments, the data collection/calculation procedures have been enhanced:

  • Data providers are required to sign a data providers’ agreement which gives CRU the right to verify data submissions.
  • Data providers will submit data electronically by CRU Indices, rather than by telephone survey.
  • In addition to price data, data providers will also provide volume data, which is equal the volume of orders to which the price submission refers.
  • Data is collected - and assessments published – on a weekly basis.

CRU is currently providing four “Level 2.0 price assessments” for Hot-rolled coil, Cold-rolled coil, Hot-dipped glavanised coil and Plate US Midwest mill.

The evolution of individual price assessments from “Level 1.0” to Level 1.5” to “Level 2.0” will take place only once extensive discussions have taken place with market participants and appropriate research has been conducted by CRU’s Steel Team analysts.  It will include a “transition stage” during which individual assessments will be calculated using both “Level 1.0” and “Level 2.0” procedures.  The resulting assessments will be compared and only when the statistical differences have been eliminated, and general market acceptance has been achieved, will CRU make the transition to “Level 2.0 price assessments”.

For information on how to become a data provider for Level 2.0 price assessments and the subsequent benefits you will enjoy, please visit www.cruindices.com

Summary

CRU maintains a policy to report accurate price assessments, regardless of the procedures employed.  The evolutionary development approach allows CRU to work with market participants at different levels of data transparency to provide accurate and timely price information.  In line with CRU’s stated policy, each of its assessments of steel prices (regardless of at what stage they are currently at) will continue to evolve in tandem with how they are being used by both the physical and financial communities.

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