Indian mills working on variable pricing mechanism in long-term supply contracts to recover rising energy costs

Monday, 25 October 2021 11:51:13 (GMT+3)   |   Kolkata

Indian domestic mills have started working out a model for long-term supply contracts with a mechanism to capture fluctuations in energy costs in their final pricing, SteelOrbis learned from industry circles on Monday, October 25.

Officials at Indian steel mills said that current long-term supply contracts ranging from three to six months did not adequately capture sharp spikes in energy costs and coking coal prices in final delivery prices and hence the mills were negotiating with their customers to incorporate a ‘variable cess’ that could be factored in periodically on a weekly or monthly basis to reflect variations in energy and coking coal costs in product pricing at delivery timelines.

The landed cost of imported coking coal has surged from levels of $110/mt CFR to around $430/mt CFR since early this year and mills with long-term supply contracts have more often been unable to recover this rising cost in prices.

The officials said that various global mineral pricing models are being looked into including the practice in the European Union (EU) where supply contracts entail provisions for additional surcharges linked to energy costs.

Commercial sales of products through distributors, dealers and other market intermediaries have prices varying on a daily and weekly basis and can be adjusted for variations in energy costs, but the recovery of fluctuating energy costs is a challenge in the case of long-term contracts with end-users, officials said.

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