Ferroglobe says NO to discounts and yes to premiums; short-term fixed pricing option

I have said this publicly, the discount is out of our vocabulary. So in this negotiation season there is just no discount. That is clear. We are just not having any discounts and as I was describing before, we are actually getting premium. So the D word is out of our vocabulary and that is clear in all our sales force,” Pedro Larrea, Ferroglobe’s CEO told financial analysts today.

“As you know, we don’t comment on our marketing strategies or customer negotiations, but to give you a sense of the quantum, all of 2017 contracts to date are closed at premiums, sometimes as high as 15% above index prices.

“Moreover, we are taking action and changing our contract structure, removing all discounts for silicon metal. And going forward, we will be utilizing those index providers who modify their reporting criteria to better reflect the overall market. We are also favoring fixed price contracts with shorter-term agreement. Overall, there is consensus in the market that our products are set for a significant price recovery in 2017, which we are already witnessing in most ferroalloys. And we are making sure that our own marketing and sales strategy takes full advantage of such recovery. Also, with the recent US election results, we expect a more favorable regulatory environment positively impacting our business.

“We reduced cost by nearly 15% for the first nine months of 2016 and by approximately 22% since January 2015. These cost reductions are mostly driven by sustainable long-term cost reductions, including power contract renegotiation, leveraging our diversified footprint and improved technical performance, further helped by low power pricing in Spain and lower prices for a number of our raw materials. This enhances our cost position in a sustained way which will further benefit us as price recover.

Now in North America we are now at around 50% of our volume already contracted and as I was describing, we are getting approaches from customers wanting to get index and/or getting fixed prices for the full year. We are going back to them and saying, no, we are using fixed prices for shorter term, that is the strategy we are using right now. So it’s fixed prices for Q1, fixed prices for first half of the year, in our conviction that prices will go up in the rest of the year.

“So in the mix right now we are favoring clearly fixed prices but it is true also that we have a significant volume of contracts that are longer term that were signed in the past and that we are continuing through 2017. And those are indexed contracts. So there is a good mix, I would say, of fixed contracts that we are signing now with prices going up and clearly above the index and some other indexed volume that will benefit also from market prices going up.

“Now in terms of the power prices in Europe, look our main silicon metal production base is France. Actually as Ferroglobe it’s the biggest production base and I can tell you that with our new power arrangement for the next 15 years, 2017, France is going to be the lowest cost production base in the world. So our costs are going to be the lowest in the world, including China. We have secured power price for 2017 and a good, like 70% or 80% also power price for 2018 and 2019 at such levels that, again, I was going to say I am confident, I am not confident I am sure that we are the lowest cost producer in the world.”

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