Posted By
TRACY SCHNEITER
on
2/25/2010 3:59 PM
Recent consumer price data released indicates that inflation remains in check – which is a good thing for those of us wanting to purchase a vehicle, right? But not such great news for suppliers and automakers trying to recoup any “extra” costs that inevitably go into putting that vehicle onto the dealer lot. There’s a trend on the near-term horizon that appears likely to throw a steely wrench into the mix as well.
According to an article in the Wall Street Journal [sub] today, just three miners of iron ore (one of the chief raw materials required to manufacture automotive-quality steel) shipped about 70% of the iron ore in the world in 2008 (those companies being Vale, Rio Tinto and BHP). The global economic softening in 2009 tempered the steel market (and its related raw materials), which saw some relief from the strong demand of 2007/2008. Renewed growth from up-and-coming nations such as China, Brazil and India will cause tight demand for steel in 2010, though, and soon. Because the iron ore mines are operating at or above capacity, they have the ability to set their own prices. Traditionally they have set them each April, but starting this year, they are evolving toward a practice of wanting shorter contracts (or “spot buys”), allowing a more market-driven price.
Sticker shock - - industry experts are estimating anywhere from a 40 to 80% increase in raw materials could be seen in 2010 as annual steel contracts become a thing of the past. So the next time you see your purchasing manager, you might just want to give him/her a hug… they could be in for a long year.
1 Response
to "Your Friendly Iron Ore Oligopoly at Work"
Mike McElroy says:
Well written.
Posted: Wednesday, March 3, 2010 6:16:03 PM