Key takeaways
- The silver in a contact is a metal cost that moves with the market, so a fixed price carries either a hedge or a risk premium.
- Net silver cost is the silver purchased minus the value recovered from runners, swarf and rejected parts.
- Joining and inspection add cost that does not scale with the silver price, so a cheap face is not always a cheap part.
- Ask for the silver basis, the recovery assumption and the scrap rate separately, then compare quotes on the same basis.
Why the metal line dominates
For a contact with a silver-based face, the metal is usually the largest single line in the piece price. How large depends on the face size, the silver content, the shank material and the current market. A small signal contact may carry only a few milligrams of silver. A power contact can carry grams.
Because silver is traded, the same part does not have the same material cost from one month to the next. A supplier who quotes a fixed price for twelve months is either hedging the metal or carrying a risk premium. Neither is wrong, but the buyer should know which one is in the quote.
The silver basis
Quotes should state the silver price they used: the market reference, the date, the currency and the premium. The market reference is usually the London Bullion Market Association silver price or a published exchange price. The premium covers the form, the purity and the supplier conversion into strip, wire or preform.
Ask whether the price is fixed for the order, fixed for a period, or indexed. An indexed clause should move both ways and should name the reference, the averaging period and the frequency. A clause that only moves up is a surcharge, not an index.
Currency matters when the metal is priced in one currency and the part is sold in another. State the exchange rate source and the date. A quote that mixes a dollar metal price with a euro conversion at an unstated rate cannot be compared with another quote.
Yield, scrap and recovery
Not every gram of silver purchased leaves in a good part. Blanking a head from strip leaves a skeleton. Forming a rivet from wire leaves an offcut. Grinding and finishing produce swarf and dust. Rejected parts hold silver that can be recovered if the scrap route is controlled.
Recovery is a credit, not a free gift. The supplier sells the scrap to a refiner, pays a treatment charge, and receives a percentage of the contained metal. The buyer should ask for the recovery assumption, the scrap rate and the credit. A quote that includes a high scrap rate but no recovery credit is charging twice.
Keep the scrap streams separate. Mixing silver-bearing scrap with ordinary brass swarf lowers the recovered value and may make the lot uneconomic to refine. A supplier with a clean segregation routine can offer a better credit than one that sweeps everything into one bin.
Joining, finishing and inspection
The joint adds cost that does not move with the silver price. Brazing needs filler, flux, heat and a controlled atmosphere. Welding needs equipment and a bond check. Staking needs a punch, a die and a press setting. Each route has a different cycle time and a different scrap rate.
Plating adds a barrier layer, a silver layer and a thickness check. Inspection adds a cross-section, a shear test and a resistance reading. These are the lines a buyer can compare between suppliers, because they depend on the process rather than the market.
The cost elements in one view
The table separates the market-driven lines from the process-driven lines. A quote that combines them into a single number hides which part is exposed to silver and which part is exposed to labour, energy and yield.
| Element | Main driver | Question for the quote |
|---|---|---|
| Metal | Silver content and face volume | Which price, date, currency and premium? |
| Conversion | Strip or wire, blanking, forming and yield | What is the buy-to-fly ratio? |
| Recovery | Scrap rate and refiner terms | What credit is assumed, and on what contained metal? |
| Joint | Braze, weld or stake, cycle time and scrap | Which route, and what is the joint scrap rate? |
| Finish | Plating type, thickness, coverage and masking | Is the thickness minimum or average? |
| Test | Cross-section, shear, resistance and sampling | Which tests are lot tests and which are type tests? |
| Packing and freight | Protection, density and destination | Which Incoterm and what packaging spec? |
The split between market and process cost is the first thing to establish when two quotes differ.
A worked example with illustrative numbers
Take a contact with 0.25 g of silver in the head, a silver price of 1.00 USD per gram and no premium, for 100,000 parts. The silver purchased is 25 kg, worth 25,000 USD, or 0.25 USD per part. Assume a 12 per cent scrap rate and a 95 per cent recovery credit on the contained silver. The lost silver is 3 kg, the credit recovers 2.85 kg, and the net metal cost is 22,150 USD, or 0.2215 USD per part. Every number here is illustrative.
Add conversion of 0.055 USD, joint 0.035 USD, finish 0.015 USD, test 0.012 USD and packing 0.008 USD per part. The total is about 0.35 USD. The metal is roughly 64 per cent of that. A 10 per cent move in the silver price changes the part by about 6 per cent, not 10, because the scrap credit moves with it.
The arithmetic is simple. The value is in the assumptions. Change the scrap rate to 20 per cent and the net metal cost rises. Change the recovery to 80 per cent and it rises again. Two suppliers can quote the same silver price and produce different part prices because they run different yields.
Comparing quotes on the same basis
Normalise the metal basis first. Recalculate every quote at the same silver price and currency, then compare the conversion, the recovery and the yield. A supplier with a higher conversion cost but a better yield may be cheaper at the part level.
Ask for the scrap rate and the recovery credit separately. Ask how the price changes at 10,000, 50,000 and 200,000 parts. Ask what happens when the silver price moves by 20 per cent. A quote that cannot answer those questions is a number, not a model.
Finally, check the commercial terms. Tooling ownership, minimum order quantity, packing and Incoterm all change the landed cost. A lower piece price with a higher freight and packing charge is not a lower cost.
Frequently asked questions
Why does a contact price change when silver moves?
The contact face contains silver, and the metal is priced from a market reference. When the reference moves, the material value of the part moves with it. The size of the effect depends on the silver content and on how much of the metal is recovered as scrap.
What is scrap recovery on a contact?
It is the credit a supplier receives for silver contained in skeletons, offcuts, swarf and rejected parts. The refiner pays for the recovered metal after a treatment charge. The buyer should see both the scrap rate and the credit, because one without the other is easy to inflate.
Should I accept a fixed price or an indexed price?
A fixed price is simpler and transfers the metal risk to the supplier, who will price that risk. An indexed price shares the risk and usually produces a lower base price. The right choice depends on the volatility, the contract length and the buyer's ability to manage the exposure.
How do I compare two contact quotes?
Recalculate both at the same silver price, currency and volume. Compare conversion, yield, recovery, joint route, finish and test separately. Then add packing, freight and tooling to get a landed cost per part on the same basis.
Sources and further reading
- London Bullion Market Association, silver price benchmarks, https://www.lbma.org.uk
- World Bank, Commodity Markets, https://www.worldbank.org/en/research/commodity-markets
- Qumek contact should-cost and scrap recovery notes
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