DETROIT -- Automakers' steel contracts -- and their once-traditional annual negotiations with steel makers -- are in a state of flux as steel makers seek to index steel prices to volatile iron ore costs.
ArcelorMittal, the world's largest maker of the metal, and other steel makers want to pass their raw-material costs along to steel users.
The possibility of indexing automotive steel "has been discussed frequently over the last quarter," says P.K. Rastogi, the Chicago-based man-ager 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 a 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 Corp. 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.
It is not clear that AK Steel and other steel makers will achieve a similar change 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, said 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 wrote in an e-mailed statement.
Although the price of cold-rolled steel has declined since May, the auto industry may find it difficult to play steel makers off against one another.
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 and ThyssenKrupp AG.