Ford Production Increases Could be the Harbinger of Rising Metal Imports

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Having just watched Clint Eastwood in Gran Torino (yes I know I am behind the curve) I felt more than usually pleased to read in  Reuters that Ford is ramping up production in the US in response to surging sales. The firm is responding to an above average success record in the Cash for Clunkers program (Ford captured 16% of the sales compared to a retail market share of 13%). By adding a Saturday shift and overtime, the firm plans to meet a third quarter production target of 495,000 vehicles, up over 18% from a year ago and set a fourth quarter target of 570,000 vehicles, a 33% gain over a year ago. The company generally carries about 60 days of inventories but those for the Escape SUV has dropped to 21 days and for the Focus to 25 days illustrating the unexpectedly strong demand.

Although Ford’s performance is above the trend set by other US automakers they are not alone. On the back of rising auto sales, imports of base metals are expected to rise in the latter part of the third quarter and into the fourth. According to this article, June imports were down dramatically from May as the industry continued to adjust to low production levels and the approaching summer season which was expected to be quiet. Data from the U.S. International Trade Commission on Wednesday showed June imports of copper fell 32% from May to 35,685 tons, aluminum fell more than 40% to 128,070 tons and nickel was down a staggering 53% at 2,340 tons. These are now expected to reverse as rising auto manufacturing sucks in components and metals.

Elsewhere concerns have been raised as in this Bloomberg report that consumer purchases of cars under the scheme will merely depress sales of other items like household goods, so the net impact on metals consumption will be largely neutral. Retail sales excluding automobiles did unexpectedly fall 0.6% in July so may be there is something in suggestion that the program is merely diverting spending form one area to another.

While the increase in auto demand is dependent on the Cash for Clunkers funding, it cannot be said to be a return to underlying growth. If the funding stops, so too will the production levels and the demand for imports. We would be interested to hear from readers if they are seeing any lengthening in supplier lead times or firming of prices for machine tools and basic components like stampings and machinings. To what extent the increase in activity is feeding through into the Tier 3 suppliers will be the measure of how much this increase in activity is benefiting the wider industrial landscape.

So while Ford has no plans to bring back the Gran Torino, it should encourage supporters of the US auto industry that at least one major producer avoided government bailouts and still has production lines humming.

–Stuart Burns

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