Protecting Your Margin

A Customer Story on Managing Steel Price Risk

In volatile steel markets, customers can't control price movement - but they can control how they manage it. For manufacturers selling finished products at fixed catalog prices, rising raw material costs directly impact profitability.

This was the situation facing a long-time Worthington Steel customer as they evaluated their steel purchasing strategy for the year ahead. Rather than reacting to market swings, the customer prioritized predictability. Their objective was clear: protect margin, even if steel prices moved unexpectedly.

Defining the Customer's Goals

The customer's finished goods were sold at fixed catalog pricing. Once those prices were committed, increases in steel costs would immediately erode margin.

They came to Worthington Steel with three priorities:

• Secure consistent monthly volume
• Align steel pricing with targeted margins
• Minimize exposure to market volatility

"This type of customer is not trying to win the market," explained Mitesh Kothari, Director of Price Risk at Worthington Steel. "They are trying to protect their margin and eliminate uncertainty."

Structuring the Contract

Working with Worthington's commercial and Price Risk teams, the customer evaluated a fixed-price agreement covering a defined monthly tonnage for a full calendar year. At the time of negotiation, the proposed fixed price carried a modest premium to the current market index. That premium represented the cost of certainty.

By fixing both their buy price and sell price, the customer locked in a known margin for every ton shipped. Regardless of where the market moved, profitability would remain intact.

"When you sell fixed and buy fixed, you can better manage the risk," Kothari explained. "You know your expected margin upfront. You are not exposed to upside or downside swings."

Market Conditions Shift

As the year progressed, steel prices rose sharply - well above the level at which the contract had been set.

For buyers exposed to index pricing, margins compressed. Forecasting became more difficult, and downstream conversations grew more complex.

For this customer, operations continued as planned. Because pricing had been fixed in advance, margins held steady despite the market increase. Production planning remained stable.

What initially appeared conservative became a competitive advantage.

A Contrast in Outcomes

Other buyers in the same cycle remained tied to index pricing, hoping to benefit from lower spot prices. When the market turned upward, they absorbed the impact.

Index-based strategies can outperform in certain cycles. They can also expose buyers to losses when prices move quickly.

"A fixed price does not mean you win every time steel pricing moves up," Kothari noted. "It means you have fixed your margins regardless of steel price movement."

Building Long-Term Confidence

After the contract term, the customer continued evaluating pricing strategies based on prevailing market conditions. In some cycles, indexed pricing made sense. In others, fixed pricing offered greater stability.

The key wasn't choosing one strategy permanently. It was understanding when certainty mattered most.

Through collaboration and transparency, Worthington Steel helps customers align pricing strategies with their broader business objectives. In uncertain markets, that clarity can be just as valuable as the steel itself.

About Worthington Steel

Since 1955, Worthington Flat Roll Steel has been delivering top-quality service that enables our customers to do the same for themselves. Our steel processing capabilities serve a variety of markets, including automotive, heavy truck, agriculture, energy, construction, and many others.

Our commitment to our customers' business goes far beyond supplying steel. We provide advanced materials support, buying strategies, supply chain solutions, and the highest level of customer service and collaboration.

If you are interested in learning more about us at Worthington Steel, want to view our capabilities, or have a question that we can help you answer, please explore our website or call us at 1.800.944.3733. We are here to be partners for your manufacturing goals.