Why is there a material surcharge?

If you’re in manufacturing supply chain or procurement of ‘material heavy’ production parts, you might run across a surcharge price that is applied on top of the base price you’re paying.  Why do some parts contain surcharge, and why might it differ from supplier to supplier?

Short answer: surcharge captures the fluctuating prices for specific raw materials in a volatile market, and there is no industry standard on what percentage of material cost can be applied to base pricing.  

In the foundry industry, material cost can represent a significant percentage of total casting cost. So even small changes in raw material pricing can result in large impacts on total production price. Surcharge allows casting suppliers to maintain a consistent base price that does not regularly change, while also charging a ‘market index’ for raw materials.

Every foundry handles surcharge a bit differently. Many North American foundries will calculate surcharge when castings ship out the door, representing the cost of raw materials used in that batch of castings.  This may differ from the surcharge that was originally quoted, as raw material prices typically change month to month. It’s common to see foundry suppliers update surcharge pricing once per month or once per quarter.

Surcharge is presented as price per pound, so calculating the total amount is straightforward if you know your casting weight.  A 100-pound ductile iron casting with a $0.50 / lb. surcharge yields an additional $50 surcharge.

If another foundry is charging a lower surcharge price (like $0.25 / lb. in the above scenario), chances are a larger portion of the material cost is simply included in the base pricing. Generally speaking, you shouldn’t be paying more or less in total material cost from one foundry to the next.

HCW's iron foundry partner, Lethbridge Iron Works, captures the following raw materials in surcharge pricing: pig iron, steel scrap, carbon, ferrosilicon, magnesium ferrosilicon, ferrochrome, ferromolybdenum, and copper. For reference, here are iron surcharge trends from Leth Iron in the past 12 months:

	Ductile Iron
September 2023	$0.58 / lb.
October 2023	$0.62 / lb.
November 2023	$0.58 / lb.
December 2023	$0.57 / lb.
January 2024	$0.55 / lb.
February 2024	$0.54 / lb.
March 2024	$0.53 / lb.
April 2024	$0.47 / lb.
May 2024	$0.46 / lb.
June 2024	$0.43 / lb.
July 2024	$0.41 / lb.
August 2024	$0.40 / lb.
September 2024	$0.40 / lb.

Let us know if you have any questions on surcharge!