The Car and Truck Fleet and Leasing Management Magazine

Steel Prices to Remain High Into 2005

October 12, 2004

High steel prices that have crushed U.S. auto parts suppliers' results for the second half of the year show no signs of abating into 2005, analysts said in a report by Reuters on October 7. And rising costs for other metals, resins and raw materials that largely have been pushed aside in the talk about steel prices also may pressure 2005 results, they said. "For the auto parts sector as a whole, we continue to believe 2005 consensus earnings expectations are at risk by up to 10 percent to 30 percent because of higher steel costs," J.P. Morgan analyst Himanshu Patel said Wednesday in a note. Several large parts suppliers have cut earnings forecasts for the second half of 2004, citing rising raw materials costs, North American production cuts by General Motors and Ford Motor Co., and other company-specific factors. Delphi Corp. and Visteon Corp., the two largest U.S. parts suppliers, have warned on results, as have Tower Automotive Inc., American Axle & Manufacturing Co. and Hayes Lemmerz International Inc. Many parts suppliers will lock in contracts with steel producers for 2005 in the next few weeks or months, and those costs will probably exceed 2004 levels. While steel has played a factor in compressing results for the largest suppliers, it also has been blamed for putting two parts-casting companies into bankruptcy and pushing other small suppliers close to seeking court protection. Privately held Citation Corp. and Intermet Corp., both parts casting companies, filed for bankruptcy in September. Casting companies are heavy consumers of scrap steel priced as available and often buy on the open market, leaving them especially vulnerable to rising steel prices.
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