Why metal puts the margin at risk
In many castings, metal is the largest part of the variable cost. Metal and ferroalloy prices can change significantly within a few months. If the selling price is fixed for a year, every increase in metal turns directly into lost margin.
Contractual solutions
Fixed price with periodic review
Simple, but it leaves the foundry exposed for the whole period between one review and the next.
Alloy surcharge or metal surcharge
The base price stays fixed; a surcharge is added (or deducted), calculated on the difference between the current metal price and a reference value, multiplied by an agreed weight.
Split price list
The casting price is broken down into its components: alloy, cores, conversion (moulding, pouring, finishing) and packaging. Components can be expressed per piece or per kg, depending on how the casting is sold. Only the alloy component is updated with the index; the others stay stable or are reviewed on different criteria (for example energy and labour cost).
Per piece or per kg?
Foundry price lists are expressed by count (price per piece) or by weight (price per kg), and the same foundry often uses both with different customers or items:
- the price per piece is typical of complex castings with many cores or operations, where weight says little about cost;
- the price per kg is common for simple castings and families of similar items, and makes metal adjustments straightforward.
In both cases the price list can be simple (a single price) or split into its components.
What to define in the clause
- A public, verifiable reference index.
- The base value of the index on the date of the quotation.
- The frequency of updates (monthly, quarterly) and the averaging period.
- The weight it applies to: net, gross or with a yield and melting-loss coefficient.
- A minimum threshold of change above which the adjustment applies.
How it is usually done
Often the price, per piece or per kg, is renegotiated once a year based on a general sense of where metal prices are going. Adjustments are requested late, sometimes not applied so as not to upset the customer, and rarely documented with price history.
The limits of spreadsheets and generic ERP systems
- A single price that cannot be broken down: updating the metal means renegotiating everything.
- No history of component prices to show the customer.
- Gross weight and melting loss unknown to sales, so clauses do not cover the real cost.
- Impact on margins not measured: nobody knows which customers have fallen behind on adjustments.
How FOND/WISE handles it
FOND/WISE handles price lists per piece and/or per kg, simple or split: in a split price list the selling price of each casting is broken down into alloy, cores, conversion and packaging, each expressed per piece or per kg.
- Separate alloy component: when the metal price changes, only that component is updated and the rest of the price stays as it is.
- Component price trends: alloy management keeps the standard price, last price and price history of each component, so you can document changes to the customer.
- Melting loss and gross weight are already in the system, so the impact of metal on each casting is calculated correctly.
- Standard and actual costs, margins by customer and item, to check month by month whether the adjustments applied are enough.
Key features
Per-piece and/or per-kg price lists
Prices by count or by weight, simple or split.
Split price lists
Alloy, cores, conversion and packaging as separate items.
Targeted updates
Only the component that changes is modified.
Alloy price history
Component prices over time, to justify adjustments.
Gross weight and melting loss
The metal each casting actually consumes.
Margin control
Margins by customer and item, month by month.
Worked example
An aluminium casting weighs 8 kg net, with a gross weight of 12 kg per piece (including its share of gating and risers) and a 3% melting loss. In April the alloy price rises by €0.30/kg. The same price can be expressed in four ways. Illustrative values.
1. Per-piece price list, simple: €38.00/piece. To adjust it, the whole price has to be renegotiated, usually at the annual review.
2. Per-kg price list, simple: €4.75/kg (€38.00 ÷ 8 kg). The adjustment is made by adding €0.30/kg → €5.05/kg, but without a breakdown it is not clear which part of the price is metal.
3. Per-piece price list, split:
| Component | January (€/piece) | April (€/piece) |
|---|---|---|
| Alloy | 22.00 | 22.00 + 8 × 0.30 = 24.40 |
| Cores | 3.50 | 3.50 |
| Conversion | 11.50 | 11.50 |
| Packaging | 1.00 | 1.00 |
| Price | 38.00 | 40.40 |
4. Per-kg price list, split:
| Component | January (€/kg) | April (€/kg) |
|---|---|---|
| Alloy | 2.75 | 2.75 + 0.30 = 3.05 |
| Cores | 0.4375 | 0.4375 |
| Conversion | 1.4375 | 1.4375 |
| Packaging | 0.125 | 0.125 |
| Price | 4.75 | 5.05 (× 8 kg = €40.40/piece) |
The result is the same, but with split price lists only the alloy component is updated, transparently for the customer, whether the casting is sold per piece or per kg.
Watch the reference weight: here the adjustment is applied to the net weight (8 kg). But the metal the foundry buys is the metal charged: 12 kg ÷ 0.97 ≈ 12.4 kg, of which about 4 kg come back as returns. If the clause is based on net weight, part of the increase on the metal in gating, risers and melting loss is borne by the foundry.
Frequently asked questions
What is an alloy surcharge?
It is an increase (or reduction) in the casting price linked to the change in the price of the metal or alloying elements compared with an agreed reference value. It passes raw-material fluctuations on to the customer without renegotiating the whole price.
Which index should the adjustment be linked to?
It depends on the metal and the agreement: exchange quotations for non-ferrous metals, industry price lists for scrap, pig iron and ferroalloys. What matters is that the index is public, verifiable and representative of the foundry’s real cost.
How often should the metal component be updated?
Many contracts provide for a monthly or quarterly update based on the average of the previous period. Updates that are too infrequent expose the foundry to long periods of squeezed margins; updates that are too frequent complicate administration for both sides.
Should the adjustment be based on net or gross weight?
It is a contractual choice. Net weight is easier for the customer to verify, but it does not cover the metal in gating, risers and melting loss. Some foundries use a coefficient that accounts for yield and melting loss, agreed in advance.