The possibility of indexing automotive steel "has been discussed frequently over the last quarter," says P.K. Rastogi, the Chicago-based manager of the automotive group for ArcelorMittal.
Steel makers are determined to seek pricing flexibility to insulate themselves from the fluctuating costs of their own raw materials. Iron ore prices in North America soared from a low of $60 per ton last year to $180 a ton in April, before easing to $140 a ton in August.
Another possibility is to negotiate contracts of shorter duration than annual contracts.
Last month, AK Steel CEO James Wainscott told Automotive News that he will give his customers a choice: an adjustable-rate contract with relatively low prices or a fixed-rate contract with higher prices.
In the past, automakers in North America typically negotiated annual steel contracts every spring. But earlier this year, iron ore producers in Asia successfully pressured steel makers in Japan and China to accept quarterly contracts instead of annual deals.
However, it is not clear that AK Steel and other steel makers will achieve a similar change in terms in North America. This spring, manufacturers replenished low inventories of steel, says Tom Stundza, a senior commodities analyst with the research firm IHS Global Insight.
That eases the pressure on them to accept short-term contracts or buy steel on the spot market. Moreover, demand for steel remains slack as the U.S. economy grinds through a slow recovery.
"The concept of a quarterly contract isn't as popular as six-month or full-year contracts," Stundza says. "Purchasers would rather have supplies guaranteed for a year or two, with maybe a price reopener every three to six months."
Toyota Motor Corp., for example, prefers yearly price reviews, says Gene Tabor, Toyota's North American general purchasing manager.
"We review pricing annually -- including steel -- but we are always willing to discuss open issues with our suppliers," he said in an e-mailed statement.
Rastogi of ArcelorMittal says discussions are under way with customers.
"We have discussions on a weekly, if not daily, basis," he says. ArcelorMittal's customers "want to understand what's going on in the marketplace."
Although the price of cold-rolled steel has declined since May, the auto industry may find it difficult to play steel makers off against each other.
In recent years, North American steel makers have gained pricing power in the wake of a brutal industry consolidation that forced dozens of companies to shut down or merge.
Now, automakers in North America buy most of their steel from five companies: ArcelorMittal, United States Steel Corp., OAO Severstal, AK Steel Corp. and ThyssenKrupp AG.
Global iron ore production has grown even more concentrated. About 75 percent of the world's iron ore is mined by three companies: BHP Billiton Ltd., Vale S.A. and Rio Tinto Ltd. This spring, all three mining companies announced plans to negotiate prices with steel makers on a quarterly basis, rather than every year.
North American steel plants are somewhat insulated from these price swings because they use iron ore mined in Canada, the United States and South America. ArcelorMittal, for example, mines much of its own ore in North America.
But iron-ore prices in North America are not totally immune to fluctuating global prices, Rastogi says . The price of iron ore, he says, "has been extremely volatile, and it will have an impact."