What are Stainless Steel Surcharges?

The purpose of the surcharge is to offset the rapid rise and fluctuating costs of raw materials that are included in each individual alloy. The surcharge is an additional charge, usually per pound, that is added to the base price.  There are some subtle differences in the way these charges are determined from mill to mill, or stainless versus nickel alloys, but the fundamental approach is common to all.  Base prices for each alloy and product form size range are established by considering the alloy content, the cost of making the particular form and size, a yield factor and basic supply/demand economics.

Let’s look at these base price factors in reverse order. High demand for certain alloys leads to lower base prices due to economy of scale and increased competition.  Aside from these supply/demand effects, some alloys are just more difficult to make than others. Easy to make materials might only need and an extra 15% of starting weight to yield the desired amount after normal processing losses like scaling during annealing, grinding, cropping ingots or trimming to final size.  The most difficult alloy and size combinations might yield only 50%, or less.  The base price is also influenced by the product form and size. The costs to produce plate are different from the costs to produce bar in the same alloy.  Generally, thinner sections will carry a higher cost because it takes more processing to make the smaller size.  Finally, the base price is established using a targeted alloy content and a reference price for the individual alloying elements. The more highly alloyed the material is, the higher the base price will be. 

The surcharge is then calculated using the difference between the reference costs and the current elemental costs.  The actual surcharge for a particular alloy/product form/size combination is adjusted based on the percentage of the element the alloy contains, and the anticipated production yield.  Remember from above that typically the mill will need to melt at least 15% more weight than will be shipped as finished product.

 Cr/#Ni/#Mo/#FerroTi/#Mn/GTFe Scrap/GT
Reference $0.35 $2.00 $3.00 $3.50 $600 $140
Current* $1.11 $7.4981 $11.2896 $3.0313 $959.80 $431

*As of 5/2014

Notice that there is also a provision for a surcharge related to natural gas. This was added in November of 2005 when natural gas prices were beginning to peak.  At present, the price of natural gas and the cost of ferrotitanium are below their reference values, so they don’t add to the current surcharge.

Fortunately, for purchases from inventory or other short term purchases, Rolled Alloys already includes the anticipated surcharge into the quoted price, so the actual surcharge at the time of delivery isn’t a direct concern.  However, for longer lead time purchases, firm prices can be offered for the base price, but the actual surcharge at the time of shipment will apply.  Clearly, the more highly alloyed the material, the greater the surcharge will be, as illustrated by a few examples for flat products over 0.015” thick.

304L – $0.7858                       Alloy 20 – $2.1931                      AL-6XN  –   $1.8849

316L – $1.1051                       2205 – $0.9498                           Alloy 625 – $5.4625

 What may not be so obvious, however, is that as the cost of raw materials like nickel or molybdenum rise, the relative cost ratios of the alloys will also change.  In the above examples, the surcharge for duplex alloy 2205 is less than that of 316L.  As nickel costs increase, the difference in the surcharges for these two alloys will increase. These ratios can figure significantly in optimizing equipment costs, particularly when total design life cycle costs are taken into consideration.