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Raw Material Prices And Steel In Particular Cloud Outlook

European carmakers are worrying about the impact of big raw material price increases in general and iron ore price hikes in particular.

According to Deutsche Bank, its index of average metal cost per vehicle is currently running at $1,371. This is well below the 2008 peak of $1,957, but is up 35 per cent compared with the same period last year and up 42 per cent compared with the 2009 trough.

“And the outlook appears to suggest continued escalation, driven by steel, which we forecast to rise to about $850 per tonne from the 2009 trough of $440, and the first quarter average of $650 a tonne,” the bank said.

The index comprises steel, iron, aluminium, copper, lead, zinc, magnesium and platinum.

Car makers have also been spooked by the decision by some of the biggest iron ore producers to stop offering yearly contracts and shift to three month sales agreements.

Deutsche Bank expects the steel price to reach $850 a tonne by the end of the year, but doesn’t think the old record will be reached.

“DB’s steel analysts do not expect steel to reach the 2008 peak of $1,160. However, if prices were to rise to those levels, supplier/OEM headwinds would be significantly higher,” the bank said.

Neil Winton – April 15, 2010

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