Commodity Price Index (CPI)

Eaton’s business model is based upon long-term commitments to its customers. The Commodity Price Index (CPI) is a price adjustment mechanism Eaton's Power Systems Division utilizes on term/blanket contracts to equitably share the risks of commodity volatility. Eaton is developing CPI models representing different products and therefore, unique component pricing, component weights and base period effectivity dates. All models share the common goal of reducing the risk to customers during periods of accelerating costs. Due to the nature of the indices they are not intended to cover all market and cost volatility, but rather smooth pricing impact and cost impact for both our customers and Eaton.

• Cost savings: CPI models enable Eaton to offer our customers competitive price levels on longer contracts sharing both the cost savings with our customers if key components in the index do not increase in cost and also sharing the increased cost over time if the component costs do increase. This method ensures customers do not pay inflated prices as manufacturers attempt to project future cost and build it into the base pricing on long term contracts.
• Offsetting price pressures: CPI models enable components within the respective index or sub-index to offset each other. If some of the components are increasing in cost while others are decreasing the net impact is calculated and applied as the index for the period. Eaton retains considerable price risk because the index is calculated with fixed periodicity, is backward looking, and only addresses changes in specific cost components, a fraction of the overall content of our product. Due to these factors, the CPI index, or sub-index, cannot decline below zero.
• Set publication dates: Eaton publishes the periodic* CPI price adjustment one month prior to the start of a calendar quarter in accordance with the following schedule.

• Control price volatility: CPI models reduce price volatility through the periodic adjustments. The CPI index is currently updated quarterly. This update includes refreshing the index price values as identified in the “Third Party Indices” section and it includes the potential update for the weight values. Eaton reserves the right, at their discretion, to alter the update frequency to accommodate market conditions. In addition, the CPI models do not cover 100% of the market and cost volatility, so an annual base price adjustment may be required to ensure market levels are maintained.
• Third-party indices: CPI component values are easily calculated by our customers using the same third party indices CPS utilizes to calculate the updates. The exception to this is the core steel data because there is no traded index for this material. CPS uses core steel data from their Supply Chain department. Due to the confidential nature of this information we are not able to disclose it.

LME Copper

The source data is the LME monthly average rate converted to US dollars/lb. In some instances, when market conditions dictate, the copper model includes the MW Platts Premium in US dollars/lb. 

Sign into LME’s free service to access the historical “Average prices” data.

Index is the average "Copper" price per tonne for a "Cash buyer."

LME Aluminum

The source data is the LME monthly average rate converted to US dollars/lb plus the MW Platts Premium in US dollars/lb.

Sign into LME’s free service to access the historical “Average prices” data.

Index is the average "Aluminum" price per tonne for a "Cash buyer."

Dielectric fluid

The source data for Envirotemp FR3 fluid valuation is the Chicago Board of Trade Soybean Oil index.

Energy Index components

Electricity – Source: US Energy Information Administration – US Industrial electricity pricing. Month-end value.

AMM Steel

The source data is published by American Metals Market (AMM) on Fridays. The index used within the AMM report is the steel base price for Midwest Hot-Rolled Sheet. The issue dated closest to the end of a month is used to determine the index.

Core Steel Index

Due to its uniqueness, Eaton uses core steel market price indicators supplied by its supply chain department to create the index data.