Though the automotive industry has experienced some recent headwinds when it comes to production numbers, the metals making up the monthly Automotive MMI® have held pretty steady (after all, our auto metals index remains the best-performing of all of the MetalMiner indexes).
The monthly Automotive MMI® registered a value of 99 in March, on par with February’s value, with lower HDG steel, shredded steel scrap, copper and lead prices driving the index.
However, one might think steel used in the automotive industry has fallen on its death bed, while aluminum has all but replaced it. Recent coverage from the New York Times sums up the rising aluminum sentiment, and pretty much sums up the Car Wars.
Reports of My Death Have Been Greatly Exaggerated?
One can’t help but wonder if the steel industry has gone down for the count! If I sat in the executive suite of any steel producer reliant on the automotive industry for more than double-digit sales and profits for my company, I’d be more than training – I’d double down on R&D, but I’d run a PR campaign around aluminum price volatility, particularly the fact that many publicly traded OEMs now find themselves out of FAS 133 compliance.
Is FAS 133 Compliance a Yawn?
Most companies that hedge their aluminum spend now have some big issues with hedge accounting treatment due to the sky-high Midwest aluminum premiums. If I’m a steel producer, I’d let the world know that volatility remains an ugly friend to the automotive industry (Ford should know better than anyone)! Steel enjoys much lower volatility than aluminum.
Auto Market Outlook
Weaker base metal and flat steel prices should have helped automotive firms’ margins this month – if it weren’t for the fact that they’ve been giving it all back to consumers.
Discounts at North American retailers, even for top-selling products like the Ford F-150 and Chevy Silverado, have been at some of the highest levels in recent years, as bitterly cold weather and over-production have dramatically increased dealers’ inventory levels. If the incentives don’t work, producers – led by Ford and GM, but including Honda and Toyota – may have to cut production in coming months.
Meanwhile, production is showing signs of recovery in Europe (albeit being still far from pre-recession levels) and sales still remain strong in China. Globally, automotive production has been running at record levels, but the current weaknesses in North America, India and a slowing Chinese economy suggest that may be at risk.
Key Price Drivers of Auto Metals Index
US palladium bar ended higher for the March reading after a 5.6 percent increase – the month’s biggest price mover. After rising 4.6 percent, US platinum bar finished up as well.
US HDG prices decreased by 2.0 percent this month. The Chinese lead price fell a slight 1.6 percent over the past month. The 3-month price of copper ended the month on the LME at $7,026 per metric ton, down from $7,061 per metric ton.
Also on the LME, the primary copper cash price held at $7,097 per metric ton. Hovering above $4 per kilogram, Korean 5052 coil premium over 1050 sheet remained relatively unchanged, if a tiny bit higher for US-based buyers.
The Automotive MMI® collects and weights 7 metal price points used in automotive production to provide a unique view into automotive metal trends over a 30-day period. For more information on the Automotive MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.