Automotive Suppliers Say Steel Prices Going Up

From Dow Jones Newswires

DETROIT — Automotive suppliers say steel prices in 2005 will continue to escalate, although they hope to win price concessions during upcoming contract negotiations, industry executives say.

Two automotive suppliers reporting earnings Thursday said steel prices will rise next year. Executives from American Axle & Manufacturing Holdings Inc. and Tower Automotive Inc. said they believe they’ll be able to negotiate reasonable contracts for the upcoming year.

American Axle uses 315,000 to 320,000 tons of steel a year, and is the largest user of specialty bar steel in the country. Through global sourcing efforts and the purchasing power the company has, American Axle Vice Chairman Joel Robinson said the company has a “competitive advantage” in buying steel because its buy is so large. About 80 percent of its business is booked for 2005, he said. The increase in steel prices cost American Axle nearly $20 million more in the second half of the year, compared with $14 million in the first half.

On Thursday, American Axle reported net income of $36.4 million, or 68 cents a share, compared with $38.7 million, or 71 cents a share a year ago. Sales were $841.6 million, compared with $867.7 million a year ago.

Tower Automotive Chief Executive Kathleen Ligocki said the company hopes to cap its 2005 steel spending at $1.2 billion, compared with $1 billion for 2004. The company is currently engaged in negotiations with its suppliers.

The company reported a net loss of $20.2 million, or 35 cents a share, for the quarter, compared with a loss of $105.9 million, or $1.87 a share a year ago. Revenue was $722 million, up from $623 million a year ago, and the company ended the quarter with $145 million in cash.

The average price for hot rolled coil steel is up 120 percent for the year, the company said. Tower purchased 40 percent of its North American steel through resale programs, where it buys its steel from the auto makers who have better purchasing power, and hopes to increase the use of resale programs 67 percent in 2005.

Dura Automotive Systems said steel prices hurt its third quarter as well. The company reported a net loss of $2.7 million, or 15 cents a share, compared with net income of $5.2 million, or 28 cents a share a year ago. Revenue was $616.4 million, compared with $554.4 million a year ago.

The net loss figure included a $5.1 million charge for closing plants in Kentucky, Missouri, Tennessee and Illinois. The company said it is looking at ways to address capacity issues at plants in France and Germany.

“As we expected, this was a challenging quarter for the automotive industry with elevated steel pricing and softening North American production volumes,” said Larry Denton, president and chief executive officer in a press release. “While material pricing continues to be a challenge in the short-term, our organic growth remains on track.”

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