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Nichols favors conversion fee over surcharge

Keywords: Tags  nichols aluminum, quanex building products, alcoa, aleris, jupiter aluminum, jw aluminum, daniel fitzgerald

NEW YORK — Nichols Aluminum LLC said it is more likely to raise its conversion fee to offset tightening spreads on aluminum scrap rather than implement a surcharge on its sales of building-grade aluminum products.

Jupiter Aluminum Corp. and JW Aluminum Co. recently announced they would be adding 5-cent-per-pound surcharges on all orders, each citing increased raw material costs as a crucial factor in the decision (AMM, July 2).

However, a spokesman for Nichols parent company Quanex Building Products Corp. said that Nichols was unlikely to follow suit, despite operating in a similar market space to Jupiter and JW.

"Nichols has not used things like surcharges. We look to get the best market price we can, and we would be looking at the conversion fee as a way to raise prices if we needed to," the spokesman said. The fee, also known as a tolling charge, seeks to cover all costs in the manufacturing process.

Nichols, which primarily purchases 3105-based alloys, particularly painted siding, for the production of construction-grade aluminum products, agreed that the spreads on these items had become more difficult for buyers since the beginning of the year.

"We’re generally constrained to the building product-type alloy because in this process you’re trying to avoid expensive sweeteners. For anybody running a building products alloy, we’re all struggling to find it at reasonable prices," the spokesman said. "There’s no ducking this. If you’re trying to buy gutter-quality scrap, it’s tight. But because demand is good, we have to secure the scrap."

He said that "multiple service issues" caused by a strike at Nichols’ Davenport facility earlier this year played a role in the company’s decision not to implement a surcharge similar to Jupiter and JW.

"During the strike, we did not do a great job, because of productivity issues, in servicing customers," he said. "We’re cognizant of what is most important, and that was getting deliveries back on-time with customers."

Meanwhile, an Alcoa Inc. spokesman said that his company also had not been influenced by the moves of Jupiter and JW. "We really don’t follow anyone—we tend to take positions that lead. That said, we always price our products in a way that reflects current market conditions, of which there are numerous," he said.

A Davenport & Co. LLC report Thursday said that Aleris had announced a 5-cent-per-pound surcharge on building sheet products. Aleris did not respond to AMM’s request for confirmation.

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