Smart managing of aluminum price risk emphasized at smelter's seminar.

Learning how to reduce aluminum market price risks in setting casting selling prices was one of three topics that aluminum casting producers gathered for at the Alchem Aluminum Seminar held in September in Coldwater, Michigan. The event drew 115 people, the highest total in the five years the seminar has been held by the smelter and distributor.

Stan Kleiss, commodity manager-secondary aluminum, GM Powertrain Group, explained to the group how aluminum's market volatilities can be practically managed to the benefit of both the supplier and the purchaser.

Providing some history, he noted that the London Metal Exchange (LME) has been the driving force for worldwide aluminum prices - even secondary - for more than 25 years. Kleiss said the "spikes and ramps are disastrous if you are a seller or buyer of aluminum."

He explained how the Big Three establishes the prices it will agree to for suppliers' raw materials. GM locks its prices on a 10-day average so, for instance, the last 10 days of December determines the price for January and February. Meanwhile, Ford's three-month prices are set by the preceding 15th of the month. At Chrysler, a three-month average price is determined, which goes into effect two quarters later.

"We try to reduce the price risk of suppliers," Kleiss said. "The closest you can set the price paid for one period, the better off everyone is. We'd like to adjust it monthly, but with 87 casting suppliers, it would be very hard to do."

In sharing data collected from tracking performances of the published indexes on A380, for example, he said Metals Week is closer to the TSP or typical street price (for a good paying customer at a full truckload). The concern with such published indexes is the wide variation between the highs and lows paid. "Whenever there's a wide variation, either you or the purchaser won't be too happy," Kleiss said.

When the amount of aluminum purchased by large organizations is factored, the impact that even a few cents can have on the profitability of a product is clear. GM has its own price adjustment based on Metals Week numbers and the current TSP.

The objective for aluminum casters, he said, is to make money in castings, not by speculating what will happen in the aluminum market.

Among the advice Kleiss offered is to buy metal at the same time that castings are being priced. For instance, when selling to GM, he suggested that suppliers buy aluminum in the first 10 days of October for November and December casting shipments. Therefore, both organizations are using roughly the same price data. He also noted to lay off price risks to the scrap sellers when possible. As one example, by-product sales of dross, chips and other aluminum scrap should be sold to scrap buyers at the same time as pricing. Again, in the GM example, this action should occur within the first 10 days of October.

The seminar followed a luncheon and morning tours of Alchem's facilities as well as the construction site for a new $12 million aluminum recycling plant that is a Alchem-IMCO Recycling, Inc. joint venture. About 50% of the plant's 150 million lb rated capacity of recycled aluminum will be supplied to Alchem in molten form.

Other industry speakers included David Parker, The Aluminum Assn., who addressed another area of potential volatility - the November elections, and Karen McBeth, Platt's Metals Week, who spoke about her publication's tracking system and survey procedures. A motivational speech by Jerry Hanlon, a former Univ. of Michigan assistant football coach, rounded out the program.