I would tie his price directly to the index you are using. I personally use Iron Age, but many are out there. Allow him to view the guide whenever he wants. This way he knows fluctuations are because of the commodity, not your business decisions. You can share with him what the person off the street gets and he should see he is getting a deal.

If the other yard is cutting the margin this thin, they are just trying to get the customer. They will get their money back down the road. If you inform the owner of this and offer pricing based on the index, you are being more than fair. He can either take your deal or he will be price shopping both of the yards for years to come. This is the method I use on big jobs when negotiating with yards. I have only done this on two jobs, but it worked. Just a thought.