Sep 10 2008
Corus is introducing an energy surcharge system that will apply across its engineering steels product portfolio from October 1.
The introduction of the surcharge is in response to the dramatic increases in energy prices during the last year. The surcharge is a transparent and equitable way of reflecting the impact of energy price changes on the cost of producing steel.
The surcharge will be indexed against publicly available European electricity and gas prices and will use a three-month average of forward prices to produce a quarterly surcharge value. While Corus does hedge some energy, a quarterly surcharge represents a balance between smoothing volatility and reflecting true market costs.
Given the variety of energy inputs into its engineering steels products, Corus is introducing a number of tiers to the surcharge depending on the key process routes.
The starting value for the October to December surcharge for a basic Rotherham product (melted and rolled) will be in the region of £65/t (euro 80/t). A basic Stocksbridge product, such as engineering rounds, will carry a value of about £75/t (euro 93/t). A turned, ground or drawn product will carry a surcharge of about £100/t (euro 124/t). In order to keep the system simple, the surcharge on more complex products will be negotiated on a case-by-case basis.
Peter Hogg, Commercial Director for the engineering steels portfolio in Corus Long Products, said “Energy costs have virtually doubled in the last 12 months. We wanted to put in place a mechanism that transparently reflects this impact. Energy pricing is not just a UK issue which is why we selected publicly available European gas and electricity prices as the basis for the surcharge system. Other industries such as glass-making, have previously adopted similar mechanisms.”