DETROIT—Raw material costs are trending up this year—chiefly because of the rising prices of steel and oil—but automotive purchasers are unlikely to panic.
From January through May, prices of 11 raw materials rose while four held steady or fell, according to a survey by AlixPartners, a New York consulting firm.
But raw materials still cost only $1,555 per vehicle, well below the recent high of $1,994 in mid-2014.
“It's a good-news picture,” said Steve DuBuc, a director in AlixPartners' enterprise improvement practice. “If you look at the recent trend line, you might say that raw material prices are rising. But they're not coming all the way back. We're in a nice, tight price band.”
The price of hot-rolled steel has jumped 33 percent this year to 31 cents per pound. That run up is the result of punitive U.S. tariffs that were slapped on Chinese steel exporters in May. U.S. regulators imposed duties of more than 500 percent on Chinese cold-rolled steel, a variant of hot-rolled steel that can be used for body panels and other stamped components.
China had previously announced plans to eliminate up to 150 million tons of annual steel output—more than U.S. steelmakers produce in a year—over the next five years. But after the U.S. raised tariffs, China said it would continue offering its steelmakers tax rebates on exports.
Despite the price uptick, steel prices in the U.S. remain slightly below their 2014 high of 34 cents a pound.
Meanwhile, oil prices rose 16 percent in the first five months to $49.10 per barrel. But oil prices are still barely half of what they were two years ago.
The global oil glut also has been responsible for a big drop in the price of resin for plastic components. And since diesel fuel prices in May were hovering at $2 per gallon—down from $3.84 in 2014—the cost of trucking parts to factories and new cars to dealerships has fallen $240 per vehicle.
“”That creates a nice tail wind for supplier profitability,” DuBuc said.
Raw material prices have been driven by three major trends: the strong dollar, China's weak economy and slack demand for oil.
The strong dollar makes all imported raw material—such as rubber, platinum and oil—less expensive. And China's economic slowdown has dramatically decreased global demand for raw materials.
Forecasters believe oil prices are unlikely to rise significantly above $50 per barrel because idled U.S. oil wells can quickly resume pumping.
“We're seeing oil bounce back, but it's going to hit a natural ceiling,” DuBuc said. “It doesn't look like oil is going to drive up inflation.”
For the rest of the year, DuBuc doesn't expect a big run up in prices. The AlixPartners report quotes a forecast by Deutsche Bank that predicts a surplus of aluminum, copper and iron ore over the next two years.
Deutsche Bank also expects significantly tighter supplies of nickel and palladium, although hefty inventories of these metals will moderate any price swings.
But steel, the auto industry's high-volume material, remains a question mark. Future steel prices will depend on the willingness of U.S. regulators to take a stand against steel dumping. That remains a political uncertainty as China's government has seemingly lost its appetite to consolidate state-owned industries.
“China doesn't have the political will to rein in steel production,” DuBuc said. “An oversupply of raw materials is the China story. Outside of new trade wars, commodity prices will stay low.”