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High Price of Steel Leaves Consumer Feeling the Squeeze

The price of steel has risen substantially over the past few months, and many suppliers to the auto industry are feeling squeezed because they are big buyers of steel, according to a new study conducted by Frost & Sullivan consulting firm.

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PALO ALTO, CA — The price of steel has risen substantially over the past few months, and many suppliers to the auto industry are feeling squeezed because they are big buyers of steel, according to a new study conducted by Frost & Sullivan consulting firm.

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Between July 2003 and January 2004, total steel prices to automotive Tier One suppliers rose 20 percent, and February saw conditions worsen as prices rose an additional 10 percent.

“Selling under long-term contracts but buying raw materials on the spot market, buyers of steel are in a position similar to that of bankers who give long-term loans but accept short-term deposits. When interest rates rise, they must pay depositors more, but do not earn more on outstanding loans,” said Senior Industry Analyst Joerg Dittmer Dittmer.

In the U.S., users of steel had expected prices to drop when tariffs limiting entry of steel from low-cost producing countries were lifted in December 2003. Possibly because of this expectation, consumers of steel chose not to protect themselves with long-term contracts to the extent that they should have, said Frost & Sullivan.

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Higher steel prices make other materials more cost-competitive. “The trend to more plastics, aluminum, and magnesium, already supported by the weight savings that these materials offer, is underway. However, material changes have a dramatic impact on a vehicle’s engineering and impacts component life expectancy, performance, and design. They take a long time to incorporate and will have virtually not impact on lowering vehicle material costs in the short term,” said Senior Industry Analyst Mary-Beth Kellenberger, .

In 2001, aluminum content in vehicles had moved into third place behind steel and iron. Industry observers expect that aluminum content in vehicles will increase by an additional 47 percent by 2005. The price of aluminum also has risen steadily since early 2003, and there are no indications that this trend is about to reverse. This limits or eliminates the opportunity for cost savings by switching from steel to aluminum.

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