By Amy Antenora Editor
Editor’s Note: Our Ask the Industry feature on raw materials will be published in two parts. This week, we present some general observations on commodities pricing in the coming year. In our next edition of Ask the Industry, MEMA Senior Market Research Analyst Richard Anderson will give us his detailed predictions for some of the industry’s most important materials.
The U.S. automotive industry is one of the top consumers of a number of raw materials – steel, petroleum, aluminum, plastic resins, to name a few. The fluctuating cost of raw materials over the past few years has caused major problems for the automotive aftermarket, impacting nearly every sector of the industry.
Take for example, steel, one of the top raw materials used by auto parts makers. A study earlier this year from Roland Berger Strategy Consults showed that steel prices have risen more than 150 percent since 2003. Demand for steel in the automotive industry has been rising. The popularity and demand for larger vehicles such as SUVs is just one reason, and Roland Berger said it expects prices to remain relatively high in the coming year.
However, steel is not the only raw material this industry depends upon. For a company like Penray, crude oil and natural gas pricing will affect just about everything the company buys, according to Purchasing Manager Dave Campbell.
“If prices go up or if there is a supply disruption, we will see higher pricing,” said Campbell . “If they go down, our costs will go down. Who can predict what crude oil will do? There are too many factors (and too many market speculators) to predict accurately.”
Campbell said Penray also closes watches crude oil for its impact on plastic resins. Resins affect the cost of plastic bottles, closures and caps. Campbell predicts stable to softer pricing for plastic resins in 2007. However, this could all change if crude oil escalates or if there are supply problems, he said.
The Motor & Equipment Manufacturing Association’s (MEMA) Market Research Department has devoted an extensive amount of time to studying the issues surrounding raw materials as a service to MEMA members. The association is currently writing about this very topic in one of its member publications, Market Analysis.
MEMA Senior Market Research Analyst Richard Anderson explained that the actual change in price of different commodities isn’t really the issue – the industry’s ability to react and adapt quickly enough is where the problem lies.
“The most important thing to understand about commodities is that price change in itself is not necessarily the problem,” said Anderson . “It’s volatility. When steel prices change very quickly, that changes the dynamic of the cost of product. Passing that cost on through the channels is the big problem because somebody is going to get stuck in the middle footing the bill. If a business has time to adapt the changes, it’s not nearly as much of an issue.
“The fact is that now all commodities are globally traded. It’s no longer simply a supply and demand issue. Commodity prices are now a market force, much more so than before,” said Anderson.