GERMANY: Major steel producers to drop multiyear price deals

GERMANY: Major steel producers to drop multiyear price deals - bad news for carmakers and suppliers

By just-auto.com editorial team | 27 June 2005

Europe's No. 2 steel producer, Corus, will stop making multiyear deals with automakers as a result of volatile steel prices. Arcelor, the world's No. 1 steel maker, also is expected to restructure its contracts with automakers and suppliers, reports Automotive News Europe.

"There will be no more multiyear contracts," said Freek Schut, Corus' automotive commercial manager. "We are now quoting prices on a yearly basis and we are not even quoting for 2006 yet."

A European supplier executive, who didn't want to be identified, said that many multiyear contracts that ended last year have already been converted to three- and six-month contracts.

Arcelor has a number of three-year contracts with automakers that end this December. "We will renegotiate these in the latter part of this year," said Patrick Seyler, Arcelor's corporate communications executive vice president.

"Last year's price movements made us question whether three-year contracts without adjustment clauses were realistic in such a volatile environment."

The steel maker's policy has been to have three-year contracts with automakers and yearly deals with auto industry suppliers.

Arcelor says that one in every two cars built in Europe uses its steel. Corus' biggest automaker customers are the Volkswagen group, Ford Motor Co. and Renault-Nissan.

The changes in steel supply contracts will be bad news for automakers as it makes their forward costs less predictable, but suppliers could be worse hit.

World steel prices in 2004 doubled from around $350 (<euro>290) a ton to almost $700, putting heavy price pressures on automakers and partsmakers.

Arcelor admits that the sharp climb in steel prices during 2004 caught it by surprise.
The typical family car uses 1 ton of steel in its manufacture, though some 400kg of this is lost as scrap during the production process. The rise in steel prices has pushed up the bill of materials for a car by 1 percent to 2 percent, said Jon King, director of Corus Automotive.

Corus and Arcelor refuse to disclose the actual prices negotiated with their customers. Even carmakers are reluctant to reveal the true financial effect of steel price rises on their businesses.

Sectors: Components, Vehicle manufacturers, Vehicle manufacturing

Companies: Volkswagen, Ford, Renault-Nissan, Renault, Nissan