An aluminum ingot pass-through clause in a die casting contract is a written price-adjustment mechanism that ties the alloy component of every part price to a public metal index (typically the LME aluminum or a published alloy-specific benchmark), so that when the index moves the part price moves with it, while the converter's labor, energy, overhead, and margin remain fixed.
The clause matters because raw material typically represents 38% of a die cast part's delivered cost, and the remaining 62% is labor, overhead, energy, tooling amortization, and stacked trader/logistics markups [S3]. A buyer who fixes an annual unit price without a pass-through is effectively making a directional bet on the LME; a buyer who includes a pass-through converts that bet into a known conversion fee plus a transparent index reference.
What a Pass-Through Clause Actually Calculates
A standard formulation reads: Part Price = (Alloy Index Price at Shipment - Alloy Index Price at Quote Date) x Net Part Weight x (1 + Scrap Recovery Factor) + Fixed Conversion Cost. The Alloy Index is normally LME aluminum cash settlement or an alloy-specific premium published by a recognized information provider, and the Scrap Recovery Factor is the percentage of melt loss and dross that the foundry credits back to the buyer when recycled runners, biscuits, and rejected parts are re-melted [S2][S3].
Three numeric inputs drive the clause: the index value (USD per kg or per metric ton), the net part weight (kg), and the scrap recovery band. Published industry data shows melt loss running about 8% of charged aluminum and dross formation another 4%, which together cap recycled content at roughly 50% before porosity risk rises [S3]. A well-written clause names all three inputs in one paragraph, names the publication, names the lookback window (for example, the average of the five business days before shipment), and names the unit.
Cost Drivers the Pass-Through Does and Does Not Cover
The clause only insulates the alloy line item; it does not insulate the buyer from tariff shocks, energy surcharges, freight, or tooling amortization. US Section 232 tariffs on aluminum imports have been set at 50% since June 2025, and the federal government has revised the metals tariff framework within the past six months, so any ingot sourced into the US market carries a duty that must be allocated explicitly to either the foundry or the buyer in the contract text [S9]. The pass-through should be paired with a separate tariff allocation clause, an energy surcharge formula tied to a published industrial electricity or natural gas index, and a freight clause tied to a defined Incoterm.
Fixed cost elements that do not move with the alloy index are: tooling (die) build and amortization, machine cycle time, labor, secondary operations such as machining and surface treatment, and the foundry's margin. Published tooling cost ranges run $5,000 to $75,000 for an aluminum die cast die depending on size and complexity, with die cast tooling insert life of 100,000 parts and as much as 1,000,000 high pressure die casting parts when tolerances are held similar to the sand casting baseline [S4]. On a 50,000-part run the tooling line alone can be $15,000 to $22,000, which is a fixed number the pass-through does not touch [S4].
Comparing the Main Index Options
Three reference prices dominate die casting contracts: LME aluminum cash (the most liquid, most cited, but pure primary aluminum and not alloy-specific), an alloy-specific premium (such as the A380 or AlSi10Mg premium published by information providers, which tracks the actual alloy the foundry charges but with a one to two month publication lag), and a regional mill or trader quote (most locally relevant, least standardized, and most open to dispute). For a North American automotive or industrial buyer the LME-cash-plus-published-premium combination is the most defensible because both inputs are auditable from independent sources. [S2]
For a buyer sourcing from China or Southeast Asia, where ADC12 and A380 are quoted in CNY per metric ton, the equivalent reference is the Shanghai Futures Exchange (SHFE) aluminum contract plus a regional alloy premium, and the contract should specify the exchange, the contract month, and the FX rate source used to convert to USD. The key decision criterion is auditability: if the foundry cannot name the publication, the contract date, and the unit, the pass-through is unenforceable in a dispute.
Who Should Use a Pass-Through, and Who Should Not
Pass-through clauses are for buyers with annual volumes above roughly 50,000 parts per part number, contract horizons of 12 months or longer, and exposure to LME or SHFE moves of more than 10% within the contract term. They are also for buyers whose end customers (automotive OEMs, appliance OEMs, EV battery integrators) demand open-book pricing on raw materials as part of their own cost-down programs. In those cases the pass-through is the only mechanism that lets the buyer pass alloy inflation to the OEM without renegotiating the whole contract. [S5]
Pass-through clauses are not for short prototype runs, for parts under 0.5 kg where the alloy dollar value is too small to justify a monthly index reconciliation, or for buyers sourcing exclusively from a single captive foundry where the alloy cost is bundled into a fixed unit price. In the latter case the alloy volatility is absorbed by the foundry and paid for through a higher fixed margin; the buyer is effectively buying insurance rather than a market-linked price.
Limits, Failure Modes, and Common Disputes
The most common failure mode is ambiguity in the scrap recovery band. A clause that does not specify a percentage allows the foundry to credit only the LME value of the dross while keeping the alloy-premium value, which on a 50% premium environment is a 15 to 25% under-credit to the buyer. A second failure mode is index publication lag: alloy-specific premiums are typically published with a one to two month delay, so during a fast-moving market the clause settles on a stale number and one party carries the gap. A third failure mode is tariff and FX exposure, both of which the LME-only pass-through does not cover [S9].
A defensible clause therefore states: (1) the named index and publication, (2) the lookback window, (3) the scrap recovery percentage with the dross credit unit, (4) the tariff allocation between foundry and buyer, (5) the FX source and conversion date for non-USD indexes, and (6) the audit right. The die casting and aluminum die casting machine reference pages cover the upstream process drivers that determine melt loss and cycle time, both of which feed directly into the scrap-recovery percentage in the clause. The die casting die page covers tooling life assumptions that determine the per-part tooling amortization, which the pass-through does not move but which the buyer must model separately.
Reference Data for Negotiation
Published cost breakdown for a representative aluminum die cast part: base production cost $8.38/kg, market quoted price $24.20/kg, implying a 65% markup stack; material share 38% (raw A380 at $2.80/kg, effective material $3.13/kg after 8% melt loss and 4% dross), labor and overhead 39%, energy 7%, tooling amortization 18% [S3]. Foundry margin 30 to 35%, trader markup 15 to 20%, logistics 12% [S3]. Tariff layer: Section 232 aluminum at 50% since June 2025 [S9]. Tooling: $5,000 to $75,000 per die, 100,000 to 1,000,000 part insert life depending on tolerance [S4].
For buyers who want a working benchmark, the A380 pass-through is normally quoted as LME aluminum plus a published alloy premium of $0.40 to $0.80/kg, with melt loss credited at 8% and dross at 4% [S3]. For AlSi10Mg used in EV inverter housings and battery enclosures the premium is higher and the melt loss band tighter, and the foundry will typically refuse a pass-through below a 24-month volume commitment because the alloy premium is more volatile [S2]. The EV battery enclosure die casting machine selection reference covers the part families that justify the longer AlSi10Mg commitment, and the shot sleeve fill ratio reference covers the process parameter that drives the 8% melt loss figure that goes into the scrap-recovery band.
Track the SHFE and LME aluminum monthly average, watch for any change to the Section 232 aluminum tariff rate, and request a quarterly index reconciliation clause in any new die casting contract signed before year-end.