Algorithms still lose to humans in the steel market

Automation has transformed financial markets around the world, but there is still a sector where handshake is the norm and the use of technology means sending offers with copy by email. The complex and antiquated steel world, which is among the oldest sectors of the United States, is one of the last lines of defense against the bots. Instead of a computerized market, where applications go back and forth in milliseconds, a large part of the sector's transactions are made in annual contracts, with combined prices and volumes. Unlike most commodities, there is almost no future market and, when steel is actually marketed, the sale happens by phone or email. The situation in the steel market, which moves US $900 billion, has almost no parallels. On the plus side, there is more price stability, which saves steel mills like US Steel, ArcelorMittal and Nucor from having to spend billions protecting future production. Customers with cozy relationships can get good offers. But for critics, the status quo is inefficient and lacks transparency, which means buyers can end up paying a lot. This business model could lead to higher costs in various products, such as cars and refrigerators, at a time when consumers are harboring with a share of the weight of the steel tariffs imposed by U.S. President Donald Trump. "The reality is that something needs to change," said Todd Leebow, president of Majestic Steel USA, who buys steel from power plants and processes the material for sale to end users. Steel "is not really an efficient market". There are many explanations that explain why "financialisation" has not yet succeeded in establishing the steel industry. Numerous products – hot rolled coils, stainless steels, among others – have made it very difficult to obtain standardized contracts. Steel mills also have a history of prioritizing relationships to the detriment of the business model. But it is also possible to argue that the sector has been so slow, and perhaps even hostile, in modernising the way it negotiates because large producers have long had dominance over price fixing. "The inertia of people in commerce is that they don't want to see their product as a commodity," said Shan Islam, director of ferrous operations at Amalgamated Metal Trading, from London. Not only do they not understand how the hedge works, they also "are pushing against it because they want to command a prize." The problem is lack of transparency, experts say. Bilateral negotiations are negotiated privately and discounts may vary according to the buyer. This gives the plants a degree of pricing power over contracts, as well as in the spot market. In addition, higher costs are usually passed along the supply chain, inflating the cost paid by consumers.