Imo some pricing contracts, at least for those who don’t have floor prices, have resulted in some companies getting shot in the foot.
Referencing spot prices, as some apparently do, when the product is not a simple commodity, doesn’t make too much sense imo, especially with the proportion of material sold on spot v non-spot markets.
What happens if a couple of decent-sized producers say: sorry our pricing is XYZ, we need to make at least x% margin….. those buyers go to the spot market instead to hunt for those tonnes, thereby raising spot market demand considerably…? What does that do to the “spot pricing”…?
(Also note that material is variable and unqualified).
The volumes aren’t there, afaict, for buyers to “threaten” to leave contracts for the spot market.
It was all roses when spot prices surged, but now even some big dogs can’t make money.
Stupid.
I also remember when some customers were reneging on contracts and companies were “accomodating” their requests to take less material.
Now the shoe is on the other foot, it seems.
Is there really that much supply out there at significantly lower cost that buyers can simply go elsewhere? Doubt it. If they go to the spot market, the demand there doubles? Triples? What then re prices…?
Anyway, at least a good lesson for future contract negotiations, wrt floor pricing vs costs.
Interesting times.
The takeaway imo is that current prices aren’t sustainable, despite some claiming they will persist for several more years. PLS etc to go bust producing at a loss for more years…? Doubt it.
Those big dogs might see some more cost savings via further economies of scale, but afaict the prices also have to rise significantly to create a viable balance that is sustainable.
….unless a whole lot of new supply comes on line at circa half the cost of say PLS….. replacing a considerable portion of current supply AND meeting future demand growth… from where though? Mystery African mines? Hmmmm… doubt it.
