DAS - Daily Alloy Surcharge 1
We believe in a world that lasts forever The world needs and deserves innovations that pass the test of time and are able to be recycled and used again at the end of their lifecycle. Outokumpu stainless steel is durable in the most challenging of conditions delivering ever longer project lifecycles. The recycled content of Outokumpu advanced materials varies between 70% and 90% depending on the grade and Outokumpu stainless steel is fully recyclable. The properties of Outokumpu advanced materials, also make them an economically sustainable solution. Our vision of a world that lasts forever not only reflects these properties but also our ongoing commitment to innovation and the development of lasting customer relationships. 2
Daily Your way to more flexible, secure and successful sourcing! Dear customer, For many years now, players in the stainless steel industry have had to face the challenging new reality of highly volatile raw material prices and the negative impact on business. Up to now most mills still provide you with traditional alloy surcharge price models characterized by a comparatively low degree of flexibility and transparency and neglect the increasing risks associated with alloy price volatility. Outokumpu puts the customer first. Your needs are at the center of all our considerations and actions in terms of our products as well as in terms of our services. We asked ourselves how can we add value to our customer s business and came up with this answer. Today we are happy to present you with the most innovative price model in the stainless steel market. As the first mill in the world, we offer you now nothing less than full flexibility you can now select your preferred mechanism out of a wide range of options that are most suitable to your business model. The new Outokumpu Daily reduces your alloy risk to an extent never seen before. At the same time, it provides you with many ways to benefit from volatile markets maximizing your metal profits. With this brochure I invite you to learn more about our innovative price system. If you have further questions which this brochure cannot answer or if you have useful suggestions helping us to further improve it, your Outokumpu sales representative will be happy to assist you. Sincerely yours, Mika Seitovirta CEO Outokumpu 3
What is the? Extras The total price for stainless steel is divided into three parts The Base price is negotiated individually with each customer and is separated from volatile alloy price movements (in order not to be fluctuating daily). Base prices are usually negotiated on a monthly basis. Extras describe material-specific charges for non-standardized product dimensions and are added or deducted to/from the base price. Typical extras are applied for special thicknesses, surfaces, packaging, etc. The (AS) is an instrument to pass on changes in alloy costs along the value chain in the stainless steel industry. s are product-specific as alloy compositions differ within the range of grades and calculation periods may be different. Up to now a monthly average calculation has been the industry standard, i.e. the average alloy costs of a fixed period prior to the delivery of the product was applied to determine the alloy surcharge. Alloy surcharges are usually published month by month. What are the advantages of the Daily Alloy Sucharge? Monthly management volatility Link of ordering date and Alloy Surcharge fixation requires speculation with right order timing No influence fixation period is determined by the mill No Back-to-back pricing Effective prices not possible within Monthly Narrow average Monthly is an average of a 30 days period No metal opportunities Pre-determined calculation period allowing no metal gain optimization Daily Stabilized order management Unbundling of ordering date and Alloy Surcharge fixation allows ordering today and fix the AS later More influence fixation period can be chosen by you Back-to-back pricing Comprehensive toolset to offer effective pricing Flexible average Nearly the whole period from order to delivery as well as only one day can be taken as AS average Metal opportunities calculation period can be determined individually allowing metal gain optimization Full flexibility Less alloy risk More opportunities 4
Which DAS options are offered? You have the opportunity to choose between three different options for each order line DAS Effective today and fix today s Daily 1 3 I JUL AUG SEP OCT 2, Extras and the Daily (valid on that day) are fixed at order date DAS Selective today but fix the Daily flexibly at any day until delivery Possible DAS fixation period 1 4 II JUL AUG SEP OCT 2 and Extras 3 are fixed at order date The Daily can be fixed at any day between order & Wednesday before confirmed delivery week DAS Average Flex today and define your own Daily average period at order date Possible DAS fixation period III 1 2 JUL AUG Ø SEP, Extras and requested average period (any individually defined period between order date and Wednesday before confirmed delivery week) are fixed at order date 3 OCT 5
Which DAS option is the best for my business model? You can choose tailor-made solutions according to your business model The Daily is valid for distributor customers, but business models of distributors differ Therefore a sophisticated price system needs to address those diverse needs Most business models vary with regard to the risks companies are willing to carry and the correlating opportunities which arise therefrom Considering those variables, there are three business model prototypes helping to make a simplified comparison: - Back-to-back: A customer order makes you buy material and you want to handover the AS without going for alloy risks - Stock-keeping: You want to replenish stock for future business - Metal gain optimization: You accept the alloy risk and try to source material cost-efficient with the target of maximizing your metal gains In practice, business models are often a combination out of those three prototypes Metal Opportunities Metal gain optimization Accepting the metal risk to enable highest level of metal gain opportunities Stockreplenishment Normal stock holding risk on metal losses but also corresponding opportunities to benefit from metal gains Back-to-Back Low risk on metal losses but also few opportunities to benefit from potential metal gains Metal Risk 6
Use of Options for Back-to-Back business You can choose tailor-made solutions according to your business model A from your customer already received Effective / You want to fix the DAS at order date Your customer orders material from you. Basis of the price calculation is the current Daily. In order to hand over the alloy surcharge to your customer, you choose DAS Effective (Option I) at order date. DAS Effective (Option I) The Daily is locked at order date. B from your customer expected before delivery Selective You want to fix the DAS at resale date You order without already having a resale order from your customer for the material. But you expect to receive it within delivery time. To hand over the alloy surcharge to your customer, you choose DAS Selective (Option II) and fix the DAS at order date of your customer. DAS Selective (Option II) The Daily is locked at the day you receive an order for the material. 7
Use of Options for Stock-replenishment You can choose tailor-made solutions according to your business model A Maximum Alloy risk spread Average Flex You want to have the maximum average DAS period To get an average of the Daily s of the maximum period, you choose DAS Average Flex (Option III) and select the total period between order date and Wednesday before confirmed delivery week at order date. DAS Average Flex (Option III) An average of the DAS of the total period between order date and Wednesday before confirmed delivery week is calculated. B Customized Alloy risk spread Average Flex You want to have a customized average DAS period To get an average of the Daily s of a self-defined period, you choose DAS Average Flex (Option III) and select any period between order date and Wednesday before confirmed delivery week at order date. DAS Average Flex (Option III) An average of the DAS of any period between order date and Wednesday before confirmed delivery week is calculated. C Late fixation Selective You want DAS to be close to delivery date In order to minimize the period between the applied DAS fixation and resale, you choose DAS selective (Option II) and fix the DAS on the last possible fixation date (Wednesday before confirmed delivery). DAS Selective (Option II) The Daily is locked at the last possible fixation date (Wednesday before confirmed delivery week). 8
Use of Options for Metal gain optimization You can choose tailor-made solutions according to your business model A Moderate metal gain optimization Average Flex You want to fix the DAS on a low average period You order material and you want to benefit from fluctuating Daily s. To individually lock the Daily and maximize metal profits, you choose DAS Average Flex (Option III) and select any expected low level DAS period of your choice at order date. DAS Average Flex (Option III) Any expected low alloy surcharge period between order date and Wednesday before confirmed delivery week is chosen and the average calculated to maximize metal profits. B Maximum metal gain optimization Selective You want to fix the DAS on a low single day You order material and you want to benefit from fluctuating Daily s. To individually lock the Daily and maximize metal profits, you choose DAS Selective (Option II) and fix the DAS on a low level of your choice. DAS Selective (Option II) The Daily is locked at a date of low alloy surcharge to maximize metal profits. 9
Overview: Which DAS option is the best for my business model? Backto-back business A from your customer already received B from your customer expected before delivery Effective / Selective A Maximum alloy risk spread Average Flex Stock replenishment B Customized alloy risk spread Average Flex C Late fixation Selective Metal gain optimization A Moderate metal gain optimization B Maximum metal gain optimization Average Flex Selective What are the general conditions? Valid for: European distributor mill-customers of flat products Launch: For all new orders from 1st of June 2014 Daily update of the If you choose Option II Selective and you do not actively fix the DAS, the latest possible fixation date (Wednesday before confirmed delivery week) will *Outokumpu reserves the right to recalculate the Daily if fixed after 2 pm CET and apply the Daily Surcharge fixed the following day. 10
You can choose tailor-made solutions To hand over the to your customer, you choose DAS Effective (Option I) DAS Effective (Option I) date To hand over the to your customer, you choose DAS Selective (Option II) and fix the DAS at the order date of your customer. DAS Selective (Option II) date To get an average of the Daily s of the maximum period, you choose DAS Average Flex (Option III) and select the total period between order date and Wednesday before confirmed delivery week at order date. DAS Average Flex (Option III) Total period To get an average of the Daily s of a self-defined period, you choose DAS Average Flex (Option III) and select any period between order date and Wednesday before confirmed delivery week at order date. DAS Average Flex (Option III) Self-defined period In order to minimize the period between the applied DAS fixation day and resale, you choose DAS Selective (Option II) and fix the DAS at the last possible fixation date (Wednesday before confirmed delivery week). DAS Selective (Option II) Last fix date To individually lock the Daily and maximize metal profits, you choose DAS Average Flex (Option III) and select any expected low level DAS period of your choice at order date. DAS Average Flex (Option III) Low AS period To individually lock the Daily and maximize metal profits, you choose DAS Selective (Option II) and select a low level DAS date of your choice. DAS Selective (Option II) Low AS date values will appear each morning on the Outokumpu website The Daily is valid for one day and guaranteed if locked before 2 pm CET* automatically be used Backward pricing not possible when fixing the DAS. 11
Working towards forever. 1531EN-GB:1. Finland, March 2014. We work with our customers and partners to create long lasting solutions for the tools of modern life and the world s most critical problems: clean energy, clean water and efficient infrastructure. Because we believe in a world that lasts forever. Information given in this brochure may be subject to alterations without notice. Care has been taken to ensure that the contents of this publication are accurate but Outokumpu and its affiliated companies do not accept responsibility for errors or for information which is found to be misleading. Suggestions for or descriptions of the end use or application of products or methods of working are for information only and Outokumpu and its affiliated companies accept no liability in respect thereof. Before using products supplied or manufactured by the company the customer should satisfy himself of their suitability. outokumpu.com