Trends in prices of raw materials
The year 2004 brought the automotive industry the greatest rises in the prices of raw materials for ten years. The prices of long steel products have increased by as much as 120 %, and those of sheet metal by between 50 % and 70 %. At the same time developments on the petroleum markets have also caused the prices of primary plastics to climb rapidly, while prices of important metals such as copper and aluminum have also gone up in double figures. This affected the first stages in the supply chain first of all, followed in the longer term by the half-yearly and annual contracts of the medium-sized and larger supply companies. And the accumulated price pressure going beyond the stages in the supply chain has of course led to an overall pressure on the vehicle manufacturers, who themselves were confronted with demands in the same order of magnitude at the end of the year.
The first provisional statistics available for the year 2004 show that the income of the supply companies in particular has suffered markedly from the rises in the prices of raw materials. And for some Japanese manufacturers, shortages in the supply of raw materials have necessitated cuts or interruptions in production, which has pointed up the risks to the stability of the supply chain that bring about severe relative restrictions on the supply of steel compared to the clearly expanded demand.
We are happy to see that in 2005 so far, a similar situation has not occurred in Germany. The supply chain has not been interrupted. This is because of the basic approach agreed between manufacturers and suppliers in the first half of 2004, according to which the vehicle manufacturers agree to the principle of bearing a portion of the additional costs - which will vary from product to product and according to the situation of the company - and the suppliers agree to make their costs more transparent. In this regard the VDA has made a special effort in its Raw Materials Committee, and also in discussions with the associations in the steel industry, foundries and the metal-working industries. The readiness of those involved to promote fair sharing of the burdens and transparency - however tough the competition - has proved to be a sensible way to reach a shared understanding under the umbrella of the VDA. And we can take a little pride in this.
It is true that right now the market is relaxing somewhat. The scrap prices fell at the beginning of the year and there are indications that the growth in the demand for steel in China is slowing down. However, it is obviously still too early to assume that things really are cooling off. A return to the old prices now seems unrealistic. But reducing the uncertainty in the chain as a result of shorter planning cycles, more and more follow-up price negotiations and reducing the greater difficulties SMEs have in obtaining finance are at least as important as the direct effect on costs. Especially in the automotive chain, where planning across whole model cycles is so very important, the practices of some steel producers invite doubt about their awareness of their responsibility for one of the key sectors of industry. Therefore in 2005 it will be all the more important that the steel industry behaves as an integral part of the automotive supply chain in accordance with this responsibility.
February 2005
