What is the Alloy Surcharge? – Definition and Calculation

Definition

The alloy surcharge (AS) is a surcharge calculated according to the prices of the alloy elements, and is the amount by which the basic price for stainless steel increases.

How is the alloy surcharge calculated?

The formula for calculating it is drawn up by the manufacturer in each case and is not published. According to our understanding however it is based upon a general approach for the calculation, in which manufacturers apply their individual parameters.

To calculate the alloy surcharge, the average value in dollars over a specified period of time is first determined for each relevant alloy component of a material.

An individual reference value is deducted from this, and it is converted from dollars to the target currency (usually euros).

Multiplying by the average proportion of alloy in the material gives us the contribution of the alloy to the alloy surcharge.

This is done with all relevant alloy components and results in the alloy surcharge of the material by adding up.

If the reference values for an alloy are higher than its average value, then its contribution to the alloy surcharge is zero, i.e. there cannot be any negative alloy surcharges.

Üblich sind pauschale Zuschlagsfaktoren für produktionsintensive Produktgruppen wie z.B. geschweißte Rohre, Walzdraht, nahtlose Rohre, die den erhöhten Schrottanteil kompensieren sollen.

In our experience stainless steel manufacturers determine the periods, the reference values, the basic raw material price and in a few instances also the weighting of alloys in individual cases in the above formula.

In general we are aware of these calculation periods:

For hollow bars and seamless tubes - 2 months.
For all other stainless steel groups - 1 month.

Can we now calculate the alloy surcharge ourselves?

In principle, yes, at least approximately.

How much time and effort does this take up?

A great deal!
We must ascertain the individual, unknown components for each respective manufacturer, such as for example the reference values, basic raw material price and occasionally also weighting for alloys as accurately as possible. This requires many years of experience and background knowledge.

Are there any reliable forecasts for alloy surcharges?

Fortunately, yes.

LZ-prognose.de has brought their knowledge to bear and with a great deal of time and effort can very accurately reconstruct the calculation of alloy surcharges for all major manufacturers in Europe and North America.

In this way, with the help of our raw materials expertise we are able to prepare very accurate individual forecasts of the constituent alloy parts and so of the overall alloy surcharge of each material (at present over 2,000 individual prognoses).

Our unerring precision at the same time sets benchmarks: Lying at over 97%, 4 weeks prior to the publication of alloy surcharges.
You can find a graphic assessment of the last 2 years and further details under accuracy.

Has this perked your interest? Try us for 6 weeks, free of charge and with no strings attached!

Register here and put us to the test. You can already find out what the forecast for next month’s alloy surcharge is to-day.
The trial period is free of charge and ends automatically. Terminating it is not necessary.

A look back through history.

All stainless steels have a high proportion of high-quality alloy parts such as for example ferrochrome, nickel and molybdenum, which have high prices compared to the basic steel material.

In fact these alloy components were very cheap at that time and were not very volatile from to-day’s point of view, but by 1988 this had already led to customary overall prices of stainless steel products needing to be adjusted frequently throughout the year. In order to prevent these repeated new pricing agreements, some manufacturers formed a second pricing component, only dependent on the alloy component parts.

This was supposed to comprise the price variations for alloy parts with regard to a basic product at the time the calculation commenced. Consequently the method of calculation described above was developed, in which reference values at that time corresponded to existing prices for alloys at the start of the calculation. In this way the alloy surcharge was viewed as being a monthly correction of the basic product on grounds of the changing prices of the alloy parts.
In this way we were able to determine basic prices once and for all and to agree on the alloy surcharge as a variable component of the overall price, which should make up for fluctuations in prices for the individual alloys. In this way new negotiations during the agreed period of validity for prices were no longer necessary.

First of all a calculation period of the previous 3 month was used, which promised to give us good equalisation and in this way no large jumps in the alloy surcharge.

But then nickel, one of the most important component alloy parts to become a sought after speculation object on the LME (London Metal Exchange), and its prices started to adopt irrational courses. The price of nickel, which fluctuated comparatively slowly between 4,000 and 10,000 \$/t from 1994 to 2003, developed a dynamic from November 2005 (price: 12,000 \$/t) which peaked at a historical maximum price of 50,000 \$/t only 1 ½ years later in May 2007, but then abruptly crashed to 10,000 \$/t (November 2008) in only 1 ½ years. This dynamic with a calculation period of the 3 previous months could no longer be tolerated by manufacturers.

This is why the calculation period was set as the 2 previous months and finally as one month prior. Merely manufacturers of hollow bars and seamless tubes left the calculation period as the last two elapsed months.

A selection of current manufacturers of rust, acid and heat-resistant stainless steels with their individual alloy surcharges:

Germany and EU
Outokumpu: flat products Germany and EU, long products (ingots, wire rod, hot rolled and cold-rolled bars) and precision strip. Alloy Surcharges Outokumpu

Deutsche Edelstahlwerke:
long products (ingots, hot rolled and bright bars, wire rod). Only customers are notified of alloy surcharges.

Mannesmann Stainless Tubes GmbH (MST): hollow bars and seamless tubes. Only customers and interested parties are notified of alloy surcharges directly.
Italy
Acciai Speciali Terni: Flat products. Only customers are notified of alloy surcharges.
Cogne Acciai Speciali S.p.A.: Long products (billets, bright bars and hot rolled bars, wire). Alloy Surcharges of Cogne Acciai Speciali S.p.A.
France
Aperam Stainless Europe: Flat products, precision strip. Alloy Surcharge Aperam Stainless Europe

Ugitech SA: Long products (semi-finished products, bright bars and hot rolled bars, wire). Alloy Surcharges Ugitech SA
Spain
Acerinox: Flat products, Long products (bright bars and hot rolled bars, wire rod). Alloy Surcharge Acerinox

TUBACEX S.A.: hot rolled and cold rolled hollow bars. Alloy Surcharge TUBACEX S.A.
Scandinavia
Sandvik Materials Technology:
steel bars, hollow bars as well as flat products made of special alloys. Homepage of Sandvik Materials Technology.
North America
ATI: Flat products. Alloy Surcharge ATI

AK Steel: Flat products. Alloy Surcharge AK Steel

North American Stainless (NAS): Flat products, long products (hot rolled bars and bright bars, wire rod). Alloy Surcharge NAS

Outokumpu USA: Flat products, long products (wire rod, bars) and precision strip. Alloy Surcharge Outokumpu USA
As the alloy surcharge is a pricing component, it is subject to monitoring by cartel authorities, who forbid any collusion or price-fixing in this context, and in this way counteract any standardisation of alloy surcharges.

This is why we expect an increase in the number of manufacturer alloy surcharges in future.

You can rest assured that we at LZ-prognose.de will also continue to offer forecasts of all the current manufacturer alloy surcharges.