purchasing points P How Do Scrap and Other Raw Material
Costs Affect Casting Price? Bob Mueller Jr., Joy Global Surface Mining, Milwaukee
I
n my last two columns, I dis- cussed why cast components should not be considered commodities and the dangers of price shopping these com-
ponents. In this issue, we will look at the eff ect melt scrap and other raw materials have on the price of cast products. Metalcasters price cast products
based on several hard-line fac- tors such as labor, overhead and, of course, profi t margins. T ese are costs the metalcaster has some control of. But, other costs are beyond the metalcaster’s con- trol, such as the fl uctuating cost of raw materials. It is important as met- alcasting procure- ment agents that we understand these fl uctuat- ing costs, how to track them, how they impact the fully landed cost of cast components and how they are paid for. Raw materials in the metalcast- ing industry include molding and coremaking sands, chemical binder systems for those sands, base metal (scrap) for melting and the alloying elements that make up the custom- ers’ material specifi cations. All of these items are commodities that carry a fl uctuating price based on global demand. Binder systems, for example, are
with demand driven by the frack- ing industry. Base scrap metal and alloying elements are driven by local demand and worldwide consump- tion. Purchasing agents can track the fl uctuating costs of scrap and alloy in publications such as the Chicago Metal Market. Others are more diffi cult to track, and the metalcaster demonstrates their costs during pric- ing discussions. Typically, fl uctuating costs of cast components are addressed through
“
petroleum-based and therefore fl uc- tuate with the price of oil. Sand for molding and coremaking fl uctuates
Base metal for melting and the alloying elements that make up the customers’ material specifi cations are among the metalcasting commodities that carry a fl uctuating price based on global demand.
the use of a surcharge. Surcharges work by establishing a base price for a given commodity such as melt scrap. Fluctuations above or below that set base price results in either a surcharge (above) or a credit (below). For example: You are sourcing a
cast part that weighs 2,000 lbs. and current melt scrap has a base price of $350/ton (#1 heavy melt). T e current price of this 2,000-lb. cast part is based on that price plus the other fi xed costs mentioned above. For the purpose of this example, let’s say the fi nal casting cost equals $4,000. Tomorrow, the price of this
#1 heavy melt goes up to $400/ton resulting in an overage that is then covered by the surcharge. In this example there is $50/ton to account for and with our 2,000 lb. casting we would have a $50 surcharge. If the price of #1 heavy melt falls to $300/ton, then you would receive a $50 credit. T e same format would apply to any other elements or raw materials you and your metalcasting supplier agree to. Some purchasing groups choose not to establish a surcharge format for addressing these costs but opt to set a base price off a fac- tored price both companies agree to. In these cases, there always is a winner and a loser. Fluctuating
costs are real and need to be cov- ered. Taking the stance that your company will
not pay for these costs is not in the interest of your supplier’s long-term health or the relationship between your two companies. Address these fl uctuating costs with your met- alcasting supplier and choose the method that best fi ts both your operations. Agree on what items are covered, what is not and a publica- tion both companies will use to track the market.
Bob Mueller Jr. is senior supplier quality engineer, cast product and casting supplier development, for Joy Global Surface Mining, Milwaukee. He has more than 30 years of casting experience.
Sept/Oct 2013 | METAL CASTING DESIGN & PURCHASING | 47
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