Automotive News Europe reports that the price of raw materials typically used in automotive manufacturing have dropped sharply. Over the past year, a price index of 16 key raw materials has declined about 21 percent, according to a study by AlixPartners, a financial advisory firm based in Detroit, MI, US.
Prices peaked early in 2008, plunged, then peaked again in April 2011. Since then, raw materials prices generally have declined as the economies of Europe and China softened, said John Hoffecker, a managing director at AlixPartners.
“It is a very global market for these commodities,” Hoffecker said. “There has been a good supply of raw materials.”
The report gathered pricing data for materials, fuel and logistics and compared the price of raw materials in North America on May 12 to year-ago prices. A few significant highlights of the price drops can be seen below
- Hot-rolled steel cost 32 cents per pound, down 18 percent
- Aluminum cost 89 cents per pound, down 27 percent
- Copper cost $3.37 per pound, down 19 percent
- Rubber cost 46 cents per pound, down 30 percent
- Magnesium cost $2.15 per pound, down 17 percent
- Crude oil cost $86.53 per barrel, down 17 percent
For automakers, lower raw materials prices over the past year amounts to $600 per vehicle, according to AlixPartners, but automakers have not fully captured those savings, the report concluded. In part, that’s because automakers use different strategies to adjust their payments to suppliers. Automakers generally index a given raw material if they can monitor price fluctuations through a public price exchange, or benchmark.
Jaguar’s 2010 XJ utilizes an all aluminum body
Steel, aluminum and copper typically are indexed, and automakers’ payments to suppliers will rise or fall in unison with those raw material prices. Not so with rubber or plastics. If feedstock prices go up or down, automakers call in their suppliers – one at a time – to negotiate price adjustments. It often takes three to six months for an automaker’s purchasers to adjust prices paid for those commodities.
The drop in the price of aluminum and magnesium is particularly interesting to manufacturers attempting to reduce the weight of their vehicles as both materials are used as a lightweight alternative to traditional steels. Use of the metals have been held back due to their comparitively higher cost and although costs remain higher than steels, this may entice more material substitution activities depending on how long this dip lasts.