Time to think premiums instead of discounts

I was thinking…always a bad thing…about discounts from index pricing for ferroalloys. I know why they started…the base price was unrealistically high and large financially secure buyers unwilling to pay the same price as small financially suspect buyers. (One large manganese alloy buyer reportedly has a contract with a major seller for DOUBLE the ‘normal’ discounts.) Also the discounts reflected payment and logistical differences.
Why? The LME price isn’t discounted? Instead of discounts why aren’t their variable PREMIUMS?
Of course the underlying price will have to be reflective of the actual market and be dynamic.
PREMIUMS also have a positive psychological effect on the market and they give buyers and sellers the same market flexibility that exists today.
It could happen but that would take a change in mindset. You can be sure I will be thinking about this more in coming days.

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2 Comments on "Time to think premiums instead of discounts"

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marvin ives
Pat, I understand that is how these discounts started, however, in today’s market you do not address how the domestic producers are utilizing QP’s to reflect higher quoted prices while at the same time discounting severely from that price. This gives a false illusion that prices in the States on some alloys are higher then they really are. In addition, QP’s in general in this market are like “the tail waging the dog” when someone can buy a small parcel of ferromolybdenum or ferrovanadium in a market with almost no spot buying from a desperate seller altering the QP which… Read more »

Always nice to hear from you. The “real” market price is ephemeral. The market price is whatever one buyer and seller agree to. I think you are confusing the actual transaction price with whatever published price is out there. It is true that often a small sale by a desperate seller can move the published price down, and that should actually harm domestic producer using QPs because they have to discount off of an even lower published price.