American Metal Market - 11.08

Extruder trims price indexing to two weeks

By Tom Jennemann Published: Nov. 19, 2008

NEW YORK -- Service Center Metals LLC (SCM), Prince George, Va., has started indexing its metal prices on a two-week average rather than a 30-day average because of increased metal price volatility.

Traditionally, aluminum extruders set a metal basis price using a 30-day average or the prior month's Midwest average, but the recent instability in pricing has prompted SCM to shorten its indexing period, the company said.

SCM used a metal basis of $1.005 a pound for the first half of November and 92.2 cents a pound starting Nov. 17, a 9-percent decrease for SCM customers who ordered after that date.

The company said it will announce its next metal adjustment-which will cover new orders and shipments for the first two weeks of December-on Nov. 26.

Rand A. Baldwin, president of the Aluminum Extruders Council, said that it is certainly understandable why extruders and downstream companies are tempted to index their prices more than just once a month. "(SCM) is making the judgment that there is always going to be volatility and is looking to set a new operating standard," he said. "Thirty days is almost always that industry norm, but I understand why they would be under pressure to do this."

Three-month aluminum on the London Metal Exchange posted an official price of $1,878 a tonne Wednesday after touching a three-year low of $1,870 on Tuesday. The light metal is down more than 40 percent from its high in July.

SCM, which was founded by former employees of Reynolds Metals Co., began production in 2003. It posted $140 million in revenue last year, up from $99 million in 2006. SCM produced 80 million pounds of extrusions last year; it has a nameplate capacity of more than 100 million pounds.