Manufacturers Add Natural Gas Surcharge

A New Jersey specialty chemical company and two Pennsylvania steel companies have announced they will be adding a natural gas surcharge that tracks NYMEX onto the sale price of their products to reflect the increased cost of fueling the manufacturing process.

Cytec Industries, West Patterson, NJ, said it would be adding the surcharge to its January melamine prices. Using the New York Mercantile Exchange published natural gas prices for each month, Cytec will implement a surcharge of +1 cents/lb. on melamine crystal for each 25 cent/MMBtu increase in natural gas (vs. a natural gas base price $4.50/MMBtu in effect November 2000). In January the published natural gas price is $9.98/MMBtu for a difference of $5.48. Therefore, Cytec's melamine crystal surcharge will be +21.9 cents/lb during the month of January.

The two Pennsylvania companies Carpenter Technology, Wyomissing, and Universal Stainless & Alloy Products, Bridgeville, both have said the use of the surcharge will help them compensate for fuel costs without having to frequently re-calculate their basic product prices.

Universal Stainless said its surcharge will be determined by comparing the previous month's average NYMEX daily settlement price to a base rate of $2.20/Mcf. The company uses between 40 MMcf/month and 60 MMcf/month. The surcharge calculation also will be based on how much energy it takes to make the individual products.

Universal Stainless attempted to implement the surcharge in October, but met resistance from customers who argued that the increase in gas costs was temporary. "However, current projections indicate this is not the case, which justifies our decision to implement this surcharge now," said Mac McAninch, company president. "If energy costs revert to previous levels, the surcharge will dissipate."

Richard Ubinger, Universal's chief financial officer, said the company buys mainly spot gas. The question remaining is "whether the customers are going to pay the surcharge."

Carpenter will be applying its surcharge, also based a monthly NYMEX settlement price minus a $2.20 base, to products produced by its Specialty Alloys Operations unit. Based on January market prices quoted on NYMEX the surcharge will add about 2% to Carpenter's products.

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