Why a machine builder with fixed prices loses its margin to a steel price rise between quote and purchase

In March 2026, a machine builder with 45 employees signs an order for a conveyor installation: €400,000, fixed price, delivery in October. The estimate is correct. A hundred tonnes of steel in plate, sections and tube at €900 per tonne, €90,000 of drives and controls, 2,400 hours of engineering and production, and a 15 percent margin. In August, when engineering is finished and the steel is ordered, the steel supplier's price is €110 per tonne higher than in March. The customer has a fixed price. The margin on the project drops from €60,000 to €49,000, and the order book still holds nine projects estimated the same way.

The director only sees this in the post-calculation per project in November. The August monthly figures show tidy revenue, because the installation is invoiced on progress, and the purchase invoice for the steel falls under "materials" alongside all other material invoices. At machine builders we see that the steel price only becomes a topic when the accountant discusses the annual figures, and by then the order book for the next six months has already been signed at the same prices.

A fixed price with six months between quote and purchase is a free option on the steel price that you give your customer. If prices rise, you pay the difference, and if they fall, the customer often asks for it already in the negotiation. If you look at it this way, you can calculate what that option is worth. We rarely come across that calculation in machine builders' estimates.

What happened to the steel price in 2026

The European Union tightened the protection of its steel industry in 2026. Regulation (EU) 2026/1384 of the European Parliament and of the Council of 17 June 2026 replaces the old safeguard measure and has applied since 1 July 2026. According to the press release of the Council of the European Union on the negotiating mandate (December 2025), the tariff-free import volume goes to 18.3 million tonnes per year, 47 percent less than the 2024 quotas, and the import duty above the quota is doubled from 25 to 50 percent. The European Commission's proposal dates from October 2025, so the market knew almost a year in advance what was coming.

The price moved with it. Trade journal Eurometal (market report, 10 September 2026) reports €750 per tonne ex works for hot-rolled coil (HRC) in Northern Europe on 9 September, €32.50 higher than a month earlier, with offers from mills between €750 and €790 and a stated target level of €800 by the end of the year. The same source (Eurometal, market report, 29 May 2026) still recorded €680 to €685 per tonne in Germany at the end of May, and the market report from SMM (23 January 2026) €630 to €640 per tonne in January. From January to September that is a rise of about €110 per tonne, more than 17 percent, while demand from manufacturing remained weak according to Eurometal in both reports.

A machine builder buys plate, sections and tube from a steel service centre or a stockholder, and that price is higher than the HRC index ex works and follows it, in what we see at machine builders, with some delay. The worked example below keeps it simple: the machine builder pays €900 per tonne for its mix in March, estimated at the January index level (€640), and in August the supplier passes on the full rise of the index up to September one-to-one, so €110 per tonne. That is the upper end of what could happen this year between quote and purchase. For your own company, check how your supplier links its price to the index; that differs per supplier and per product.

How to calculate the open steel position of your order book

The March estimate for the conveyor installation: 100 tonnes of steel at €900 is €90,000. Drives, motors, sensors and the control cabinet, together €90,000. Engineering and production 2,400 hours at a full-cost hourly rate of €55 is €132,000. Coating, transport and third-party assembly €28,000. The cost price is €340,000, the sales price €400,000, the margin €60,000 or 15 percent.

The August steel invoice is €110 per tonne higher: 100 tonnes times €110 is €11,000. The margin drops to €49,000, from 15 to 12.25 percent. That is 18 percent of the project margin, and it is the yield of 200 hours of work at the €55 hourly rate disappearing without anyone working an hour less.

The same calculation for the whole order book. The company turns over €9 million a year and expects €540,000 profit before tax, 6 percent. On 1 September it has €4 million of signed fixed-price orders for which the steel has not yet been ordered. The steel share in the estimates is 22.5 percent on average, so that order book contains €900,000 of steel at estimated price, or 1,000 tonnes.

The open steel position is the number of tonnes you have sold to customers at a fixed price and still have to buy from your supplier at a price you do not know.

Every euro the index moves per tonne costs or earns this company €1,000. This year's €110 costs €110,000, and that is 20 percent of the expected annual profit. Earning that loss back at a 15 percent margin takes more than €730,000 of extra revenue, almost a month of production.

The average steel share of 22.5 percent hides where the risk lies. In the estimates we see at machine builders, a frame or a steel supporting structure consists of 40 percent or more steel and a control cabinet of a few percent. If you calculate the open position per order, you see in the worked example that three of the ten orders in the book together carry 600 of the 1,000 tonnes, and that the first measure should start with those three.

Why a machine builder does not pass on a cost increase automatically

The obvious move is simply to build the rise into the next quotes, but that is not the right route:

Amiti, Itskhoki and Konings (Review of Economic Studies, 2019) studied at Belgian industrial companies how prices respond to their own cost increases and to competitors' prices, known as cost pass-through. Small companies passed on an increase in their own costs almost entirely and paid hardly any attention to competitors; large companies passed on about half and let the other half of their price depend on what competitors did. For an SME machine builder, that is good news for new quotes: the price follows costs. The problem lies in the orders already signed, because that mechanism does not work there, and with six months' lead time that is almost half a year's revenue in the worked example.

Kahneman, Knetsch and Thaler (American Economic Review, 1986) recorded in surveys what customers consider a fair price increase. A price increase that passes on a cost increase was considered acceptable by 79 percent of respondents; an increase because demand rises, such as a more expensive snow shovel after a snowstorm, was considered unfair by 82 percent. Eyster, Madarász and Michaillat (Journal of the European Economic Association, 2021) built a pricing model on this in which customers consider a mark-up on cost unfair, and show that companies therefore do not fully pass on a cost increase and absorb part of the increase in their own margin. For your quote conversation this means: a customer accepts a price that moves with steel if the link to cost is visible. A price increase without that explanation reads to him as a higher mark-up.

At machine builders we see that passing on costs falters in practice in the quote itself, because the estimate uses the last steel price paid while the steel is only bought months later, and then in the negotiation: a customer comparing three quotes chooses the lowest fixed price, and the machine builder that is the only one to include an index clause feels more expensive than it is. Both can be solved, and the solution starts with knowing how large the open position is.

Where the open steel position arises and where you close it

The table shows that the risk arises at the order and disappears at purchase. Everything that happens in between, from engineering to waiting for a customer who has to approve the drawings, extends the period in which you have sold a price you do not yet know yourself. At machine builders we see that this period is often longer than the director thinks, because the steel is only ordered once the last drawing has been approved, and the customer takes weeks over that.

Which open steel position is acceptable, and when you reach that point

An open position of zero is not achievable for a custom machine builder, because you only know exactly what you need once engineering is finished. So the question is how much open position you can carry.

We use a rule for this that you can calculate in five minutes: a 10 percent movement in the steel index on your open position should not cost more than 10 percent of your expected annual profit.

Above that figure, there should be a clause, a purchasing agreement or a hedge.

In the worked example, 10 percent of the index on which the order book was estimated (€640) is €64 per tonne, and on 1,000 tonnes that costs €64,000. If you use today's index, €750, it is €75 per tonne and €75,000; so the rule becomes stricter as steel becomes more expensive. Ten percent of annual profit is €54,000. The position is therefore too large, and without measures the company may have at most about 840 tonnes open. The difference of 160 tonnes seems small, but the rule also tells you when to apply it: on the day of the order. Every order signed without the open position having been calculated can cross the limit unnoticed, and the director from the opening already had nine such orders running in March.

The limit shifts with the margin. A company with 10 percent profit before tax on the same revenue can carry 1,400 tonnes under this rule, a company with 3 percent profit 420 tonnes. At that 3 percent, €270,000 profit, this year's €110 on 1,000 tonnes of open position costs €110,000, more than 40 percent of profit.

What the law and the Metaalunie conditions say about a price increase after the order

We do not give legal or tax advice; what follows describes which rules exist, so that you know what to ask your adviser.

Many machine builders and metalworkers use the Metaalunievoorwaarden (the general terms of Koninklijke Metaalunie, version 1 January 2025). Article 7 reads (our translation): "The contractor may pass on to the client an increase in cost-determining factors that has occurred after the conclusion of the agreement." Article 2 provides that offers are non-binding and revocable, even if they state a period for acceptance. On paper, the steel price rise in the worked example can therefore be passed on. In practice, that depends on whether the conditions have been validly declared applicable and handed to the customer, and on whether the customer has not stipulated its own purchasing conditions or an explicit fixed price in the negotiation. With large clients, we see the latter more often than not.

Without such a stipulation, for work that qualifies as a contract for work (aanneming van werk), Article 7:753 of the Dutch Civil Code (wetten.overheid.nl) applies. At the contractor's request, the court can adjust the price for cost-increasing circumstances that arose after the agreement was concluded and that cannot be attributed to him, "provided the contractor did not need to take the possibility of such circumstances into account when setting the price" (our translation). The third paragraph adds that this only applies if the contractor warned the client of the need for a price increase as soon as possible. The European measure had been known as a proposal since October 2025 and was adopted on 17 June 2026, so with a quote from 2026, whether you need not have taken the possibility of a price rise into account is a question a customer will ask. And if you see the higher steel invoice in August and only inform the customer at the final invoice in November, you have neglected the duty to warn.

Questions for your adviser: do our Metaalunie conditions legally apply to every customer, including customers with their own purchasing conditions; does our work qualify as a contract for work or as a sale, and what does that mean for Article 7:753; how do we word an index clause that holds up with a customer who demands a fixed price; and how do we record the warning to the customer at the moment the purchase price becomes known.

Which machine builders this does not apply to

The worked example relies on a steel share of 22.5 percent, half a year between quote and purchase and a customer who wants a fixed price. If one of those assumptions falls away, the calculation changes.

A company that mainly assembles bought-in parts, with a steel share of 8 percent, has an open position of about 355 tonnes on the same €4 million order book, and this year's €110 then costs €39,000, 7 percent of annual profit. That is annoying, and it fits within the 10 percent rule without anything having to change. A steel construction company that delivers within six to eight weeks of the order and orders the steel in the first week has an open position of a few weeks at most, and in our experience the index rarely moves more than a few tens of euros per tonne in those weeks; the monthly movement Eurometal reported in September 2026 was €32.50. And a company that mainly works for government or large industrial clients with contractual indexation already has the risk with the customer on paper, and only needs to check whether the index used and the reference date match what is actually bought.

There is also a situation in which the measures below help less: a market in which demand is so weak that the customer goes to the competitor at the first index clause. Eurometal's market reports describe exactly such a market in 2026, with scarcity on the supply side and weak demand among buyers. In that market, reducing the open position through purchasing, by fixing the steel price on the day of the order, is a better route than the clause, because the customer notices nothing.

What can a machine builder do about a steel price rise after the quote?

The measures below follow from the worked example. The first is work we sell ourselves, because setting up management information is our trade; take that into account when reading.

1. Calculate the open steel position of the order book every month, in tonnes and in euros. Four columns in a spreadsheet are enough: per signed order the steel tonnage from the estimate, the estimated price per tonne, the order date if there is one, and today's index. The sum of the unordered tonnes times the difference between index and estimated price is your position. In the worked example that is 1,000 tonnes and each euro per tonne costs €1,000. Test the position against the rule of 10 percent of the index against 10 percent of annual profit, and do that on the day an order is signed; by the end of the quarter the position is already a few orders larger. The article on rolling forecasts describes how to set up and roll forward such a monthly forecast.
2. Fix the steel price with the supplier on the day of the order, even if the drawings are not ready yet. In the estimates we see at machine builders, the main dimensions and tonnage of a frame are already 80 to 90 percent known at the order; the details follow later. In our experience, a supplier who knows the order is coming is often willing to fix a price for a few months. In the worked example, this closes the 1,000-tonne position on the day of the order. If you actually buy the steel three months earlier, you pay interest on it: at 6 percent on the overdraft facility, on the €2 million of steel the company buys per year that is about €30,000 a year, plus storage space. That is less than a third of the €110,000 the open position cost this year, and the comparison should be made again every year.
3. Put an index clause in the quote and explain why. The clause, known as a price indexation clause or escalation clause, refers to a named index on the quote date, for example the North European HRC price, and settles deviations above a band of 5 percent, up and down. In the worked example, that band limits the open position to €32 per tonne, so €32,000 on 1,000 tonnes, 6 percent of annual profit, and the rest lies with the customer. Kahneman, Knetsch and Thaler (1986) show that customers accept a price increase if it demonstrably follows cost, and the symmetry in the clause, the customer benefits too if steel falls, is the argument in the conversation. Check with your adviser how the clause relates to Article 7 of the Metaalunie conditions and to the purchasing conditions of your largest customers.
4. Shorten the validity of your quote and link the price to the quote date. A quote valid for 90 days gives the customer three months of free option on the steel price on top of the lead time. Article 2 of the Metaalunie conditions makes offers non-binding, but a customer who signs after 60 days on a quote without a date attached to the price expects that price. Put 14 days on it and the sentence "price based on the steel index of [date]", so that a later order automatically becomes a recalculation.
5. Hedge large positions on the futures market, if the position is large enough. On the London Metal Exchange a contract on North European hot-rolled coil is traded, in dollars per tonne, in lots of 10 tonnes and up to 15 months ahead, cash-settled against the Argus ex-works price. A position of 1,000 tonnes is 100 lots. That requires a bank relationship or broker, a margin account, and the awareness that the price of your plate at your supplier does not track the index exactly and that the contract is in dollars. We rarely see this at machine builders of this size, and measures 2 and 3 achieve the same result in the worked example without that complexity. For a company with an open position of several thousand tonnes, it is worth a conversation with the bank.

If all this is too much for now, start with measure 1 and with measure 2 for the three orders that together carry 600 of the 1,000 tonnes. In the worked example, that brings the position from 1,000 to 400 tonnes in a single afternoon, well within the rule, and the rest can wait for the next round of quotes.

Frequently asked questions about the steel price and fixed prices in machine building

Can I pass a steel price rise on to my customer after a quote?

That depends on what was agreed. Article 7 of the Metaalunievoorwaarden (Koninklijke Metaalunie, 2025) allows a contractor to pass on an increase in cost-determining factors that occurred after the agreement was concluded, if those conditions legally apply and the customer has not stipulated a fixed price or its own purchasing conditions. Without such a stipulation, Article 7:753 of the Dutch Civil Code offers a route through the courts for a contract for work, but only for circumstances you did not need to take into account when setting the price, and only if you warned the customer as soon as possible. We do not give legal advice; put your conditions and your quote text to your adviser.

How do I calculate what a steel price rise does to my margin?

Take the steel tonnage from the estimate and multiply it by the difference between the purchase price and the estimated price per tonne. In the worked example in this article, that is 100 tonnes times €110 is €11,000 on a €400,000 order, which drops the margin from 15 to 12.25 percent. Do the same calculation for all signed orders whose steel has not yet been ordered; that total is the open steel position, 1,000 tonnes in the example, and every euro per tonne of movement then costs €1,000.

What is an open steel position?

The number of tonnes of steel you have sold to customers at a fixed price and still have to buy from your supplier at a price you do not know. The position arises on the day of the order and closes on the day you place your purchase order, so earlier than delivery. In the worked example, the position is 1,000 tonnes on an order book of €4 million with a steel share of 22.5 percent.

How much steel price risk can my business carry?

Our rule is that a 10 percent movement in the steel index on your open position should not cost more than 10 percent of your expected annual profit. In the worked example, estimated at an index of €640, that is €64 per tonne times 1,000 tonnes is €64,000, against a limit of €54,000, so the position is too large and should come back to about 840 tonnes, or be offset by a clause or a purchasing agreement. Apply the rule on the day an order is signed.

How do I include a price indexation clause in my quote?

Name an index and a reference date, for example the North European HRC price on the quote date, and agree that deviations above a band of 5 percent are settled at purchase, in both directions. Kahneman, Knetsch and Thaler (American Economic Review, 1986) found that 79 percent of respondents considered a price increase acceptable if it passes on a cost increase; the symmetry of the clause is therefore your argument in the conversation. Have the wording checked by your adviser, especially with customers who have their own purchasing conditions.

Should I buy steel as soon as the order is signed?

If you can fix the price with the supplier without taking delivery of the steel yet, in the worked example that is the measure with the greatest effect: the open position goes to zero on the day of the order and the customer notices nothing. If you actually buy the steel three months earlier, at 6 percent interest on €2 million of annual purchases that costs about €30,000 a year plus storage, against €110,000 of margin lost on the open position in 2026. That trade-off changes if interest rates rise or the steel market calms down, so make it again every year.

What happened to the steel price in 2026?

Regulation (EU) 2026/1384 has applied since 1 July 2026. According to the press release of the Council of the European Union on the negotiating mandate (December 2025), the tariff-free import volume goes to 18.3 million tonnes, 47 percent less than the 2024 quotas, with an import duty of 50 percent above that. According to Eurometal (market report, 10 September 2026), hot-rolled coil in Northern Europe rose to €750 per tonne ex works, against €630 to €640 in January according to SMM, amid weak demand from manufacturing.

Further reading: Making projects profitable: managing margin per project and Rolling forecasts: steering in a moving market. On the same risk in another sector: Why fixed-price deals in IT projects lose money more often than you think. New: Why a transport company in a loss year keeps paying the monthly provisional corporate income tax assessment on last year's profit. Also of interest: Why a machine builder only sees at the invoice that a 2,400-hour project cost 2,870 hours.

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