The confusion about
surcharges occurs when a customer is imposed a surcharge by some suppliers but not others or the surcharge varies widely from one metal- caster to another. Many casting customers have questions regarding the reason for a surcharge, its components and how it is calculated. These common questions are tackled in this article, but for specific answers, talk with your chosen metalcasting facility to learn about variations in surcharge components and geographic markets for metals.
account or added to base prices to create a “total cost” calcula- tion. Either way, for comparison of multiple suppliers, all costs related to an individual part number must be captured. With this information in hand, you will be better equipped to make the best decision possible related to pricing when comparing one supplier with another.
B
Why do metalcasters need surcharges?
Until as recently as three years ago,
scrap metal and pig iron pricing were fairly stable, with mild movement
METAL
up or down due to regional market demand. However, in the last few years, the metalcasting industry saw incredible movement in pricing due to global demands (Fig. 1-2). Scrap metal dealers have been finding higher pay- ing customers in foreign countries for their products, which ultimately has driven prices higher. Pig iron pro- duction has been tightly controlled as well, creating supply problems
Calculating a Surcharge W
hile surcharge calculations can vary between metalcasters, the fol- lowing example from a ferrous facility can be used as a guide. The elements included in the calculation are volatile raw materials that
show the greatest increases and decreases between the base price and the current price. The surcharge for each element is based on a formula that accounts for the amount of the material used per melt.
METAL Material
Carbon Raiser Additrol 75% FeSi
5% MgFeSi Copper
Scrap Steel Pig Iron
Cover Material Silica Sand
Silicon Carbide Furnace Liners
Resin Coated Sand Total Surchage
Base Price* $0.39 $0.14 $0.62 $0.74 $3.35 $0.20 $0.24 $0.13 $0.04 $0.41 $1.93 $0.15
Current Cost Change Surcharge $0.41 $0.15 $1.21 $1.40 $2.79 $0.15 $0.48 $0.31 $0.06 $0.59 $2.00 $0.18
$0.017 $0.010 $0.594 $0.661 -$0.563 -$0.054 $0.242 $0.182 $0.023 $0.173 $0.070 $0.034
*All prices are per pound and include freight.
$0.001 $0.001 $0.011 $0.016 -$0.006 -$0.045 $0.058 $0.005 $0.008 $0.002 $0.000 $0.001 $0.05
Calculating Total Cost
efore you begin negotiations with your metalcasters, know how your accounting department expenses the surcharges. Surcharges can be separated as a line item in an individual
and higher prices. With these unique circum- stances, most metalcast- ers have begun passing along monthly changes in pricing to customers to avoid incurring huge monthly losses that would immediately im- pact their bottom-line. In some cases, long- term contracts have had to be renegotiated to al- low fluctuations in pric- ing of raw materials to
avoid bankruptcy by the metalcaster. Few iron and steel metalcasters
are not using a surcharge. Those that aren’t are typically companies with an extremely stable scrap metal price or a long-term supply contract. Surcharges are not unique to the metalcasting industry. The energy, petroleum, chemical and transporta- tion industries also have started using surcharges in the past year in response to movement in the price of oil.
What’s in a surcharge? The answer to this question var-
ies widely depending on how each metalcaster determines its individual price. The most basic surcharge is based solely on scrap metal pur- chased each month. Other surcharges are more sophisticated and based on formulas that capture all metallic inputs into the melt, such as copper, nickel, ferromolybdenum, ferroman- ganese and ferrosilicon. These addi- tions also have seen wide movement during the last year. More complicated models may
also include price fluctations from energy and petroleum-based chemi- cal binders, which are driven by global demand for phenol, which is used in several other industries, including plastics.
What’s the basis for surcharges?
When possible, metalcasters or
their scrap metal dealers base month- ly prices on generally accepted price reporting publications, such as Iron Age or Ryan’s Notes for ferrous, and the London Metal Exchange (LME) for nonferrous. For example, the price for No. 1 busheling for the Chicago market is well-reported in scrap publications. However, items
28 Metal Casting Design anD PurChasing MarCh/aPril 2010
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