NEW YORK Thermal aluminum extrusion manufacturer Wakefield-Vette Inc.s shift to a bimonthly pricing model in an effort to cope with aluminum price volatility is drawing mixed reactions from industry players.
"Yes, the change they announced would temper to some degree large movements in pricing, particularly for order date pricing customers. Here, if we have customers that try to manipulate, we just tell them we are going to change the price for out of place or unusual order volume changes to what it would have been if it was handled normally. We dont have regular problems with this because we have regular long-term customers that understand we wont allow this during large pricing swings," one extrusion company executive told AMM, noting that his company would "take a look at this option."
A second extrusion company executive praised the move. "With the volatility of the (London Metal Exchange) and Midwest premium, order entry becomes skewed, creating plant booking problemsand metal margins rise and fall without any hope of forecasting financial performance," he said.
But other industry participants cast doubt on the effectiveness of such a model. "In a falling market, it doesnt work so well," a third extrusion executive said.
Paul-Henri Chevalier, president of Hammond, Ind.-based Jupiter Aluminum Corp., also expressed doubts.
"Using a bimonthly Midwest may help. However, it will not efficiently replace the current mechanism, as the metal fluctuations remain in the hands of nonusers, such as traders and speculators," he said.
Chevalier recently called for changes to aluminum pricing models that are based on the LME and Midwest premium (amm.com, April 10).
R. Scott Kelley, president and chief executive officer of Prince George, Va.-based Service Center Metals LLC, called for the institution of bimonthly pricing more than a year ago, claiming that extruders could reduce risk by bringing costs "as close to the point of sale as possible" (amm.com, June 4, 2013).
Wakefield-Vette "will be pricing our extrusions based on the prior two-week Midwest average rather than the prior months average," Dan Brosnan, director of extrusion sales at Pelham, N.H.-based Wakefield-Vette, had said in a June 18 letter to customers.
"This effort will curb to some degree any precipitous movements in the aluminum pricing market. With imminent price movements apparent at months end, we typically experience a surge in orders, which dismantles production flow and temporarily extends lead times. Implementing the new format will also allow us to better level load orders into our system and have a better handle on production queue volumes," the company said.
According to Wakefield, the Midwest aluminum average price has increased 3.5 percent since the beginning of June.
AMMs spot P1020 Midwest premium is at 19.3 to 19.5 cents per pound, up an average of 2.6 percent from 18.75 to 19 cents at the start of the month, but has stabilized somewhat since reaching a high of 20.75 to 21 cents in late January (amm.com, Jan. 30).
Meanwhile, the LMEs three-month aluminum contract has posted gains in recent months, settling at $1,902 per tonne (86.3 cents per pound) June 25, up 8.3 percent from $1,756 per tonne (79.7 cents per pound) May 21 and 12.8 percent above this years low of $1,686.50 per tonne (76.5 cents per pound) recorded Feb. 4.