Why Use Index-Linked Contracts in Cement?
Cement prices fluctuate, index-linked contracts can help buyers and sellers stay aligned, manage risk, and plan with more confidence.
1 Feb 2025
Cement pricing has always been tricky
If you’re buying large volumes, even a small shift in price can impact your margins, bids, or supply agreements. That’s where index-linked contracts come in.
Whether you’re a buyer trying to avoid overpaying, or a seller looking to secure consistent value, linking your physical cement contract to a recognised price index helps remove guesswork and friction.
What is an Index-Linked Contract?
An index-linked contract doesn’t lock in a fixed price upfront. Instead, the buyer and seller agree to use a published benchmark, such as Platts FOB Turkey, plus (or minus) a negotiated adjustment that reflects local factors like transport, handling, or quality differences.
The contract typically covers a total volume over a set period (e.g. 6–12 months), with expected monthly drawdowns. At the end of each pricing period (usually monthly), the delivered price is calculated as:
Delivered Price = Delivered Volume × (Index + Adjustment)
This approach ensures pricing reflects real-world market movements while keeping the terms clear, consistent, and fair to both parties.
Why It Matters
More transparency. Everyone knows what the price is, and why.
More flexibility. If prices move, your contract moves with them.
Fewer disputes. When the index is accepted, both sides focus on delivery, not defending prices.
This model is widely used in energy and metals. Now, it’s time cement caught up.
What to Watch For
Choose the right index. The most common in cement today is Platts FOB Turkey.
Agree on the local adjustment. This is key to aligning the benchmark with your actual deal.
Track your volume and timing. These impact the total value and performance of the contract.
Conclusion:
Index-linked contracts bring clarity to a volatile market.
They don’t eliminate price movement, but they give you something better: a clear reference point, agreed in advance. That’s what makes better trading possible.