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        home > news > Automakers > Carmakers Face New Pressure Due to Rising Steel Prices

        Carmakers Face New Pressure Due to Rising Steel Prices

        Steelmakers pressuring Biden to keep tariffs in place.

        Joseph Szczesny
        Joseph Szczesny , Executive Editor
        May 27, 2021

        The shortage of semiconductors that has sliced automobile production around the world during the last six months is a fact of life to which car makers have had to adjust.

        BMW carbon emission free steel sunroof
        Steel prices have jumped four-fold in recent months, adding to the issues automakers are facing.

        John Lawler, Ford Motor Co.’s chief financial officer, told analysts this week the company has no reason to adjust its earlier guidance that the shortage of semiconductors — many of them made in a single plant in Japan that was shut down for seven weeks due to a fire — could force the company to reduce its production by as much as 50% in the second quarter.

        Now carmakers are facing rising prices — and possibly shortages — of another key material: steel, which just like semiconductors, is used by every single carmaker, putting more upward pressure on vehicle prices.

        Steel prices rise dramatically

        After bottoming out around $460 per ton last year, the benchmark hot-rolled coil steel, the steel widely used for automobile and truck body panels, has climbed to approximately $1,600 a ton, according to various indexes of steel prices. The current is nearly triple the 20-year average.

        BMW carbon-emission free steel frames
        Car companies use steel for a variety of applications.

        Like the price for other commodities, the price of steel has increased 60% this spring as the economies in China and North America and parts of European Union have come back to life in the wake of the pandemic. So far steel prices have gained nearly 60% in 2021. It’s helped that steel companies cut back on production during the pandemic, making the metal just one more commodity currently experiencing high demand at a time of low supply, analysts observe.

        Of course, steel prices can’t go up forever, and history suggests they are nearing a peak. Since the start of the millennium, there have been four previous steel surges — in 2004, 2008, 2016 and 2018 — in which prices rose between 37% and 84%, according to Bank of America analyst Timna Tanners, who noted the price surges all soon faced.  

        However, analysts, who follow the steel industry, are debating whether prices will come down or whether the price hikes will prove more durable, leaving the price for benchmark products such as hot-rolled coil steel at a higher level. 

        Demand for steel-intensive pickup truck is problematic for automakers.

        Steel makers love tariffs

        Meanwhile, capacity utilization in the steel industry in the United States has climbed from just under 50% a year ago to 79.6%, according to an article in Northwest Indiana Times in the heart of one of the country’s major steel producing regions and closely aligned with the auto industry.

        Paul Jacobson, GM’s chief financial officer, acknowledged last month rising material costs not connected to the semiconductor shortage are a major headwind for the company.

        Tariffs, which the Trump administration boosted by 25% in 2018, also have played a key role in the rising prices for steel products. So far, however, the Biden administration has been slow to roll back the tariffs.

        Several organizations sent a letter to President Biden to imploring him to keep steel tariffs in place.

        Seven of the leading groups representing the domestic steel industry and labor today urged President Biden to ensure steel tariffs, put in place in 2018 to protect national security, are preserved.

        The American Iron and Steel Institute, United Steelworkers union, Steel Manufacturers Association, the Committee on Pipe and Tube Imports, Specialty Steel Industry of North America, American Institute of Steel Construction and Alliance for American Manufacturing released a letter they sent to Biden urging him to keep the tariffs in place.

        “Eliminating the steel tariffs now would undermine the viability of [the American steel] industry. Opponents of the steel tariffs argue that they should be eliminated to increase supply, given the current environment of rising prices and long lead times,” the letter stated. 

        “This ignores the fact that the COVID-19 pandemic has posed unprecedented, but temporary, challenges to global supply chains in many industries — including lumber, semiconductors, concrete, agricultural products and cleaning products — as manufacturers respond to rapid and unpredictable shifts in customer demand and logistical difficulties. The same is true for steel, the letter stated.”

        The groups note that “domestic steel supply is responding to market signals.” Steel production has increased by more than 50% in the last year and steel mill employment has increased by nearly 3,000 since September. 

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