Steel Price Increase to Hit Toyota at Home
Thanks to the rapidly expanding Chinese and Indian automotive markets, iron ore prices are soaring. CNNMoney reports Asia's three largest steelmakers have been hit with a 65 percent increase in iron ore prices from Brazil's Vale (the world's largest ore producer). Unsurprisingly, other large ore producers are expected to follow suit. Even though the trend will increase steel prices and thus production costs, Toyota says prevailing economic conditions (a.k.a. a stagnant Japanese new car market) means they can't hike up prices at home. ToMoCo Prez Katsuaki Watanabe says "It's hard for us to pass on the impact of higher steel material costs to our product prices under current circumstances. We have to cope with increased material costs by reducing our product costs." Translation: either Toyota will have to to cut other operating expenses or use profits from overseas operations to keep the home operations afloat. Sound familiar? [Props to starlightmica for the link]
More by Frank Williams
Comments
Join the conversation
Ore pellets were around $110/ton last year, but will be approaching $200/ton this year. Scrap steel is currently around $270/ton. Aluminum on the LME is at $2500/ton (cold rolled steel, the kind used for vehicles is around $600/ton) Things have really changed around. For a long time, it paid to not be integrated. The mini mills like Nucor and Steel Dynamics undercut the prices of the integrated mills through their low cost processing that started with scrap. But now, scrap and ore prices are both going through the roof, and the mills that are going to make boatloads of money are the ones that can supply their own ore and coking coal, i.e the MORE integrated the better off you are these days...
Apparently Chinese demand for steel in the building boom leading up to the '08 Olympics is causing a crime wave in Japan.. Time to stop guessing which of the dom 2.8 is going to go bankrupt first, and start guessing which is going to soar to profitability by selling its bloated inventory to China as scrap.
But this affects not just Toyota, but all automakers. Toyota is famed for it's efficiency and cost-effective production methods so it won't be as bad for Toyota as it will be for some others like GM. It's not like GM can afford to raise prices.
I remember reading that we toss enough steel cans (soup, veggies, etc) in the U.S. to provide our auto industry with all the steel they use in producing automobiles each and every year. But Japan probably has mandatory recycling, so too bad for them I guess. If not, though, Toyota should look into starting a program to get recyclable steel for building cars.