Hyundai Faces Higher Steel Costs
Bloomberg reports that Hyundai's been hit hard by rising steel prices. Apparently, China's Olympic building boom is causing localized shortages and driving up prices. Rising raw materials costs cut especially deep for the value-minded Hyundai brand, who can ill-afford the hike. "The higher prices come at a difficult time,'' says Mirae Asset Securities analyst Kim Jae Woo. "Hyundai won't be able to pass on the higher costs to customers as the slowing global economy is already damping auto demand.'' Steel prices are expected to continue rising for the considerable future; raising an interesting challenge to the strategy of manufacturing in east Asia. Although low labor costs have made the region popular among budget automakers (e.g. GM's Daewoo), China's economic boom is putting increased pressure on commodity prices. In the cutthroat global automotive industry, there's nowhere to hide.
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All automakers are being affected by high material costs, and that certainly includes Hyundai. The only question is how each automaker will deal with it.
Three ore producers, Vale, Rio Tinto and BHP control about 70% of the market. About a month ago, steel makers agreed to a 65% bump in ore prices.