Physical recycled-metal contracts often reference an LME Official or another agreed price. The parties must specify which metal, price point, prompt, currency, date or averaging period, publication source and fallback applies. The scrap adjustment then reflects recoverable metal, preparation, alloy, treatment, freight, finance, quantity and transaction risk.
Elements of a complete formula
| Reference | Exact LME price or agreed published benchmark and unit. |
| Quotation period | Single date, shipment window average, arrival period or another objectively defined period. |
| Payability | Percentage, fixed differential or recovery-based value. |
| Deductions/additions | Moisture, non-metallics, alloy penalties, treatment, freight, insurance, finance, inspection and premium. |
| Finality | Origin versus destination weights, assay or yield; tolerance and claims process. |
Why “LME minus 20%” is incomplete
It leaves unanswered whether the reference is cash bid, cash offer, settlement, three-month or another price; which date applies; whether freight is included; how moisture and contamination are treated; and whether the percentage assumes a particular recovery or grade.
Price and basis risk
The seller and buyer may face exposure between contract, pricing, shipment and payment. A commercial formula should align physical timing with any hedging approach and define disruption, market-closure and publication fallback provisions.
General commercial guidance only. Grade nomenclature and market practice vary. The signed contract, current official specifications and transaction-specific professional advice control.