Every month, the Stainless Steel producing mills announce their stainless steel alloy surcharge. Some months the surcharge increases and other months it decreases. Have you ever wondered why that happens or what drives the surcharge?
Historically, surcharges have been used to recoup costs on extremely variable priced components within the entire supply chain. The surcharge was designed to be in place for a period of time, and adjusted according to changes in those costs or be removed if stability occurs. One of the most common surcharges that impacts everyone daily, both personally and professionally, is the fuel surcharge. When fuel costs began to escalate several years ago, transportation and freight companies were not able to increase the cost of delivery services due to agreements and competitive pressures. A fuel surcharge was implemented as a method to recover the cost of fuel when it was over a normal price and was adjusted monthly based on that cost.
The alloy surcharge for stainless steel was implemented for the same reason. The alloy surcharge is comprised of five elements; nickel, chrome, molybdenum, manganese and iron. All of these elements, used in steelmaking, became excessively volatile within the past two decades. While there is only one cost component impacting the fuel surcharge – the cost of fuel – stainless has five. Formulas were created to allow the surcharge to be blended based on the amount of those elements used in the steel making process, by grade.
Each of the stainless steel producers have slight differences in how they calculate the monthly alloy surcharge. Mill customers have the ability to track the surcharges as the actual costs used to change surcharges are based on published figures.
The timing changes for the elements are monthly, with the exception of chrome, which changes quarterly.
The typical breakdown for stainless grades and the percentage of the surcharge are:
In 2017, the cost of electrodes,a consumable in the steel melting process, rose quickly with a forecast of continued increases for the next several years. The price volatility for this cost component fits into the concept of the monthly surcharge. Currently, most of the US producing mills are including this in the alloy surcharge as a way to recoup this additional cost.
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