Articles in Category: Automotive

A debate raging largely behind closed doors among members of China’s ruling élite mirrors a wider debate that has been gathering steam this year: the viability of electric vehicles, at least over the next few years.

An FT article says that Beijing is rethinking its focus on electric cars as a means of reducing fuel consumption and improving air quality, as it looks increasingly likely the country will fall far short of ambitious goals to sell 1 million electric vehicles by 2015 and 5 million by 2020. As we have come to expect (and respect) with the Chinese, Beijing was hoping a combination of financial incentive for consumers, cheap loans to industry and party targets would combine to give China a world-leading position in the electric vehicle market.

It has worked spectacularly well in many other industries, but Chinese consumers, it seems, are influenced by the same concerns as those in other parts of the world when it comes to electric vehicles and that is lack of range and high cost (even after government subsidies of nearly $9,500 per vehicle). In fact, Chinese buyers have been even less willing to take the step than those in the West. Last year Toyota sold only one Prius in China — yes, you read right; one car!

Beijing may sensibly scale back its aspirations and hedge its bets by widening the 1 million vehicle target to include hybrids as well as all electric vehicles although based on Toyota’s experience, they clearly still have a major challenge ahead of them even then. Maybe they would be better advised to take the route being more vigorously pursued by BMW, Mercedes and VW, who (while still developing EV and hybrid models) are pouring millions into improving fuel efficiency and reducing Co2 emissions from turbo-charged conventional petrol and diesel engines. VW’s new “Up city car, for example, offers 67 mpg combined driving from a petrol engine while some Mini diesel owners report high 60s, even 70+ mpg; as good or better than many hybrid cars. Dollar for dollar, investment in diesel technology has proved an immensely more sensible and environmentally beneficial direction for power plant development.

Most analysts suggest Beijing’s intent to leapfrog the halfway house of hybrid cars and expect large-scale uptake of electric vehicles was always unrealistic. The question is, are our own expectations of widespread uptake of hybrid and electric vehicles not overly optimistic? Sales so far have been lackluster.

The Nissan Leaf (most hyped EV of the year) has sold just 10,000 vehicles worldwide since its launch last December; half those are in Japan, home of the city dweller, and about 4,000 in the US (out of an approx 1,360,000+ year-to-date small car segment sales in the US). It’s generated lots of interest with comparatively few sales, but then that is the story for just about all electric-only vehicles lots of interest hasn’t moved nearly enough product.

–Stuart Burns

BMW has revealed details of just one of the projects they have been spending all those millions of euros of profit on recently. Building on test-bed trials they ran with electric Minis over the last couple years, BMW has released details of two concept cars which they hope will be sufficiently different from all the other EV and hybrid offerings out there to generate volume sales. Although the two vehicles fall under the same, Apple-like i-project designation, they are substantially different in many ways.

The compact four-seat i3 is an all-electric, largely urban vehicle which looks crushingly awful in the above photo of a test car courtesy of autoexpress.co.uk, but somewhat more attractive in the artist design image alongside its stablemate, the i8 below, from BMW themselves.

Both vehicles, while platforming many new ideas that have been gestating at BMW, have some notable design similarities. In particular, BMW states that the weight-saving by building the cars from carbon fiber on top of an aluminum chassis allows them to use significantly smaller and lighter (and therefore cheaper) lithium ion battery packs. We have to take them at face value here; it doesn’t sound intuitively obvious that the saving on a lighter battery pack is greater than the cost of carbon fiber + aluminum (minus what the body would have been using steel).

In addition, in the life cycle of the car, carbon fiber is a very expensive material, both to produce and to repair in the event of an accident, but maybe that is part of the issue — car producers don’t pay for repairs, but they do pay for the battery supplied with the car. Is it preferable to keep battery costs down at the expense of long-term repair costs? A US automotive blog site called autoblog advises the not-so-sexy i3 is powered by a 150-horsepower electric motor and a lithium-ion battery pack that reportedly provides up to 100 miles of range. The battery can be 80 percent recharged in one hour on a rapid charger or fully recharged in 6-8 hours on a 220v mains outlet. All that weight-saving is evident in the specs though; the i3 will weigh only 1270kg (2800lbs), a useful 250kg less than the Nissan Leaf, and is scheduled to come to market in 2013.

The more sexy i8 is a different concept, a two door 2+2 seat hybrid sports car with electric motors running the front wheels and a 1.5-liter turbo-charged three-cylinder petrol engine driving the 1480 kgs (3263lbs) car from 0-62 mph in just 4.6 seconds 0.3 seconds faster than the M3 Coupe and to a governed top speed of 155 mph via the rear wheels. Fuel consumption is said to be in the region of 90 miles per imperial gallon and deposits now will not see a delivered car before 2014.

Full details on both cars can be found on the BMW press site here. In addition, BMW in the UK has a clever graphic display showing how the carbon fiber body fits around motors and internal components connected to the aluminum chassis. As one would expect with a concept car, specifications are still limited.

BMW is, to its credit, taking the evolution of the car in a more holistic fashion than their peers. They are said to be pouring $100 million into research and development around the i-series inter-connectivity with the outside world. For example, the sat nav takes you to the closest parking spot to your destination and then seamlessly connects with an app on your mobile phone to navigate you through pedestrianized areas this is a European car, remember to your final destination. No doubt such innovations will be rolled out through all of BMW’s range, some even before the i-cars come to market. The question is, will BMW’s use of carbon fiber and aluminum eventually take over from their use of steel and aluminum as the primary method of automobile construction? That will be an interesting trend to follow over coming years as an aluminum man, I am just pleased to see my metal playing a role in both design approaches.

–Stuart Burns

With stock markets the world over plummeting last week (the Dow lost more than 500 points, the biggest single-day drop since December 2008), there may seem to be nothing but dark days ahead. If manufacturing numbers (PMI, etc.) are any indication, growth is elusive.

By this token, the U.S. and global auto production and sales numbers may tell us a lot about where steel, aluminum and lead may be headed in H2. Although sales and profits at certain auto companies in the US have been reported higher than expected, the global outlook may not look so good.

The Big Three US automakers all reported positive sales; GM’s sales increased roughly 8 percent (214,915 total light vehicles), Ford was up 9 percent (177,419), and Chrysler/Fiat’s sales spiked 20 percent (111,439), according to Ward’s auto data.

However, the prospect of US economic recovery is looking dim these days, if you listen to the talking heads of these companies. “Chrysler’s U.S. sales chief, Reid Bigland, called the market “tougher than a cheap steak,” while his equivalent at General Motors Co, Don Johnson, said “consumer confidence is pretty fragile right now because of everything that’s happened in the past few months,” as quoted in a Reuters article.

Look To Incentive Spending?

And that’s why incentive spending by these carmakers in the US and Japan may be taking more of a front seat, according to Reuters. Based on information from Edmunds, the car research firm, domestic auto manufacturers may look to increase incentive spending to match that of Japanese brands. Toyota and Honda’s spending is much higher, since the tsunami set back their production this past spring, and

“Japanese brands increased incentive spending about 25 percent to $1,990 per vehicle from June to July, compared with a 4.5 percent rise to $2,919 per vehicle by the U.S. automakers, according to Edmunds.

However, these deals surely cut into profits, and GM, for one, proved that it didn’t have to rely on them in July. According to an AP report, GM was able to pull back its rebates in the wake of the Japanese disaster, since Toyota and Honda’s inventories were down. The report cites that GM’s incentive spending per vehicle fell 20 percent to $3,022 in June, according to TrueCar.com. That led to GM doubling its profit to $2.5 billion in Q2.

But many are saying that won’t last. Mainly, raw materials prices continue to trend higher, and that cost allowed GM to raise its prices. However, that may not be sustainable. On the flip side, if steel prices soften in H2 this year, profits may decrease again, coupled with the still-stagnant consumer demand likely to continue.

Global Slowdown

Globally, car sales are either mediocre or falling in China and India, the two largest auto markets in Asia. The Chinese Association of Auto Manufacturers (CAAM) reported only a 0.65 percent increase in production and 1.4 percent increase in sales in June, according to their website. (This is crucial for GM, whose China sales are key to their health.) Increases in both production and sales seem to have leveled off to match corresponding months in 2010, continuing the softening growth trend in China:

Source: CAAM

And in India, car prices are getting much higher due to interest rate increasing, prompting their national auto association to drastically downgrade sales and production — MetalMiner’s TC Malhotra detailed this scenario in a recent post.

All of this points to perhaps much lower auto demand in the second half of this year. We’ll wait to see what effect Japanese restocking will have in the fall, as well as how the rolled steel and aluminum prices are trending. On the consumer side, if the unemployment rate drops significantly in H2 and brings spenders back into the auto market, then we could have a different outcome.

–Taras Berezowsky

The US car industry has certainly bounced back.

Washed clean of massive debts and supported by some $60 billion of government money, two of the Big Three have successfully reorganized themselves into a very different industry from the last decade. More fleet of foot, Ford managed it, just on their own.

Whether for reasons to ensure the industry’s long-term prosperity or to reduce the country’s balance of payments, the government is now imposing tough fuel efficiency standards. By 2025 US car-makers will have to get 54.5 miles per gallon, on average, from their fleets, about twice the current level. As the Economist points out, if tougher standards had been set back in the 90s, arguably the Big Three would have been better able to cope with a competitive range of vehicles in the early part of this century; but that rather overlooks the host of other problems GM, Chrysler and (to a lesser extent) Ford were carrying into 2008.

The EPA champions the tougher standards, and it says, “Together, they will save American families $1.7 trillion dollars in fuel costs, and by 2025 result in an average fuel savings of over $8,000 per vehicle. Additionally, these programs will dramatically cut the oil we consume, saving a total of 12 billion barrels of oil, and by 2025 reduce oil consumption by 2.2 millions barrels a day”as much as half of the oil we import from OPEC every day. The standards also curb carbon pollution, cutting more than 6 billion metric tons of greenhouse gas over the life of the program”more than the amount of carbon dioxide emitted by the United States last year.

All this may sound like meddlesome big government, but if there is one thing the Big Three proved, you cannot trust them to make the long-term strategic decisions necessary for their own survival. They are driven too much by this year’s car sales and the next facelift.

Globally the car industry is facing massive over-capacity. The car industry can produce 94 million cars a year, against global demand of 64 million, according to another Economist article. As the article points out, annual sales growth in China is forecast to fall from 30 percent to around 10 percent from this year as other parts of the country follow Beijing’s move to restrict the number of cars in the city. That will both squeeze Western firms selling into China, but in the medium term it will encourage Chinese manufacturers to look abroad for sales growth. Globally the whole industry needs to rationalize, but with employment and automotive production so closely linked in Europe, it is unlikely much of a dent will be made in the estimated 30 percent over-capacity in that market.

The UAW, bargaining with the Big Three this month, is therefore going to be more about keeping jobs and finding common ground than the confrontation of old. All in labor costs have fallen from $76/hr to something above $50/hr as part of the agreement reached when GM and Chrysler went into Chapter 11. All three firms are now making money before exceptional items, all the more remarkable when you consider the US will buy only some 13 million cars this year against a peak of over 17 million just a few years ago, as this graph produced from data provided by WardsAuto.com shows.

Graph: MetalMiner. Data: WardsAuto.com

The trend to make fewer cars and to make smaller cars (by extension, more fuel-efficient cars tend to be somewhat smaller) has led to reduced demand for steel and other metals, which is unlikely to come roaring back as the trend to weight saving continues.

But alongside that has been a marked increase in the use of alternative materials, aluminum being a major beneficiary. This will likely accelerate if European experience is anything to go by. Europe trails the US in so many ways, but in automotive design many of today’s trends in the US were started five or ten years ago in Europe or Japan. There, as more recently in the US, government mandate has increasingly set the longer-term agenda for the car industry. Let’s hope they have got enough right to ensure the long-term survival of our major players on both sides of the pond.

–Stuart Burns

There comes a time when a breath of fresh air at metals conferences indeed, at any conference is desperately needed, and that moment came when Lloyd O’Carroll took the podium at the Harbor Aluminum Outlook conference to talk about aluminum cans, cars, and many other uses of the light metal.

O’Carroll, a metals equity analyst for Davenport & Co. (who also served as a corporate economist for Reynolds), began by invoking legendary Packers coach Vince Lombardi, and it was good for a chuckle. But his jocular manner and Southern charm were only as good as his numbers and analysis which was equally interesting, if only it called out the “Big Three, as he called them: Cans, Cars and Construction.

Cars Ëœn Trucks

Good news for the aluminum industry comes primarily in the North American car and truck industry, according to O’Carroll. “If it moves, it’s gotta have aluminum on it, he said

While we all know auto production and sales are up lately, a good indicator that relates to our previous series, “Car Wars, is how many pounds of aluminum are used per car. There has been a consistent upward curve since 1998, when it was about 242 pounds per car; in 2010, that number was 330, and by 2012, O’Carroll forecasts more than 340 pounds per car.

He also calls out heavy trucks and truck trailers as “the two markets propelling aluminum extruders in North America. He added, “Hopefully everybody gets to make a buck.

Beer and Soda

In a sector close to my heart and my palate beer consumption has unfortunately been dropping in the US, which proportionally affects aluminum can demand. Yet there’s growth in the Euro and Asian markets, and quite sizable growth in Latin American markets especially Brazil.

More and more beer producers (craft brewers especially) are making the move to cans, as they are not only lighter (helping shipping costs) and more recyclable than glass, but they’re better for the beer as well. Nearly 65 percent of beer volume goes into cans, according to O’Carroll’s analysis.

Another interesting metric: pounds of aluminum sheet per 1000 cans. It’s getting harder to make aluminum cans any thinner, according to O’Carroll. “Downgrading is reaching its metallurgical limit, he said. Back in 1994, roughly 40 pounds of sheet made 1000 cans; in 2009, it’s down to about 33 pounds.

Construction and Housing

Lastly, it appears that O’Carroll holds similarly bearish views to the Beaulieu brothers, in that the one sector he doesn’t expect coming back anytime soon is the US housing market.

Ultimately, O’Carroll is most bullish on the aerospace industry, as my colleague Stuart covers in a separate article. With Boeing doubling its number of planes in the next couple decades, it’s certainly one sector that will make aluminum producers and suppliers happy.

Fun fact: the current lead-time to get a 737 delivered is mid-2019.

*Follow us on twitter: @metalminer

–Taras Berezowsky

Well folks, I have finally arrived at the end of my China kick, and will give the country, its economy, its politics and its culture (at least as the main focus) a bit of a rest in MetalMiner’s digital pages right after this post.

With all the talk of soft landings for the Chinese economy, this is the last in a series about China’s sociopolitical and socioeconomic shifts and how they could drastically influence how the metals world does business in the next half a century and beyond. Of course, when I say I’ve reached the end, it’s more in the sense of a university commencement the end of something that is, truly, the beginning of something new.

Consider how China stacks up against its large Asian partner to the southwest India:

  • Life expectancy in India: 64.4 years. In China: 73.5 years
  • Infant mortality rate in India: 50 per 1000. In China: 17 per 1000
  • Maternal mortality rate in India: 230 per 100,000 live births. In China: 38 per 100,000
  • Mean years of schooling in India: 4.4 years. In China: 7.5 years
  • Adult literacy rate in India: 74 percent. In China: 94 percent.

These figures come from the UN and the World Bank, as compiled by Amartya Sen in his article for the New York Review of Books. Sen makes the general point that while India continues to grow its economy in GNP terms, that growth is not yet shown to be helping India’s quality of life. For example, India’s educational system (especially for women), health care sector and ability to amply nourish its children all score lower than China’s. But on the flip side, India’s biggest asset moving forward may be its democratic structure and free media, which is able to avoid the types of authoritarian governmental control and censorship in various sectors that we see in China.

But increased quality of life in India is ultimately predicated on the country’s economic growth, and it is in danger of keeping up its rapid pace. This is the backdrop for the more recent trend of overall economic slump in Asian economies.

India’s economy was expected to grow over 9 percent this year, well on its way to join China territory by breaking 10 percent. Instead, the Q1 2011 tally put growth at 7.8 percent, which is lower than the 8.3 percent rate in the last three months of 2010, and lower still than the year-on-year figure (9.4 percent), according to the Wall Street Journal. (In fact, the WSJ reports, this is the first time that figure fell below 8 percent since the end of 2009.)

China PMI is also down last month, and industrial production in South Korea, Japan, Hong Kong, Singapore and even Europe is down as well. ISM numbers are way down (check out my colleague Lisa’s post on this today.) Auto sales in both India and China have also cooled.

So is it a “soft landing or a “hard landing? The consensus of experts and analysts seem to favor the former, maintaining that what we’re seeing is a temporary cooling period. After all, inflation is at all-time highs in India and China, and central banks are doing their part to rein in rising prices for food and goods. But as manufacturers’ oversupply of inventory begins decreasing again and especially as India and others rebound from their soft landings — look for demand to get stronger the second half of the year and into 2012.

–Taras Berezowsky

Fortune magazine recently released their 2011 Fortune 500 list, the lionized itemization of the 500 biggest US companies by revenue. Predictably, Wal-Mart (No. 1) and Big Oil hold the top handful of spots, as they have for a number of years, but we thought it might serve to outline how the metals sector and other supply and manufacturing industries fared last year in the Fortune 500, and what it could mean for 2012.

If taken for its disparate parts, i.e. hundreds of companies’ earnings ranked in order, the Fortune 500 may not offer much of a picture, but as a whole, the list gives a panoramic glimpse of the American business landscape, and some trends may be gleaned from the editors’ time-honored compilation. Handy for us, Fortune’s editors are diligent enough to categorize the 500 companies by industry, and in general, 2010 looked like a pretty good year for metals-and-manufacturing-related industries, judging by the subtitled banner for the category (found in my double-issue print edition): “Once-struggling sectors are showing signs of life. Homebuilders returned to the list after a year off, and automotive revenues jumped 25%, to $465 billion.

So why not begin with their “Metals category, featuring 6 companies all of us are, undoubtedly, pretty familiar with. Alcoa is No. 1 in the category (123rd overall), with just over $21 billion in 2010 revenues. With Alcoa pushing forward on innovations and moving past certain acquisitions that burdened their bottom line in years past, Alcoa’s executives are bullish for aluminum’s future. US Steel is No. 2 (148th overall), with Nucor following close behind at No. 3 (157th overall). Nucor, however, posted 2010 profits of $134 million, while US Steel lost $482 million that year. Commercial Metals, based in Texas and operating several steel minimills and a copper tube mill in the US, came in at No. 4 (361st overall), followed by Steel Dynamics (368th) and AK Steel (383rd). Taken in total, the 6 companies made a collective $72.9 billion. (Reliance also made the overall list at 367th with $6.3 billion.)

General Motors and Ford both weighed in on the first page of the list, at No. 6 and No. 10, respectively. GM’s revenues increased 29.6 percent from 2009, marking the fourth-best showing year-over-year among the top 20, with, shockingly but perhaps not surprisingly, Fannie Mae posting a whopping 429% increase in revenues in 2010. (Fannie Mae is No. 5 overall in 2010, up from 81 in 2009 quite a jump.) Caterpillar had a good showing at 58th on the list, not to mention a good feature story in the print edition about weathering economic storms in the climate of emerging markets.

If anything, the overall trend appears to portend a positive forward curve as far as the global economy is concerned, with steel, aluminum, auto and construction companies looking to ride out the rest of 2011 and do much better in 2012. We can look for prices (and therefore revenues) to keep increasing ahead into the middle of the decade.

–Taras Berezowsky

One of my favorite things about running this site involves the plethora of information we receive literally from around the world. One of our favorite research services which we frequently write about, the Consumer Metrics Institute, has become Top-10 reading for us not because it necessarily accurately predicts GDP numbers, but rather because it provides us with specific insight to real-time (well, near real-time) internet consumer buying trends. Whenever I see consumer data presented by the US government, I know that Richard Davis of the Consumer Metrics Institute will provide some commentary to help explain why headline economic numbers don’t always tell the underlying story. Today, I’m particularly interested in exploring a dilemma that, on the one hand, appears positive for the steel industry, but on the other hand, does not necessarily bode well for the economy.

On Thursday, May 12, Gerdau Market Update, in their weekly summary examined consumer debt as a proportion to income. The report pointed to several trends for consumers including an increase in revolving debt (e.g. credit cards and home equity loans) twice over the past four months, another month of increased installment loans outstanding (installment loans serving as a payment vehicle to big ticket items think autos and white goods), growth in DI (disposable income) and a return to a historical norm of a key consumer ratio, namely consumer credit to DPI or disposable personal income (see link to chart here).

“The bottom line is that consumers have made great progress in wringing out the excesses of the last decade which is very good news for the economy as a whole and for future steel demand, according to Gerdau Market Update.

But have consumers made great progress in terms of wringing out the excesses of the last decade?

We’ll return to that question in a second, but as our friends at the Consumer Metrics Institute pointed out in a recent research note, the percentage of US consumers who were optimistic about the economy fell from 41 percent to 27 percent, according to a late-April 2011 Gallup poll:

Source: Gallup

In addition, Consumer Metrics Institute points to declining Household Sector Indexes which track purchases of appliances (well under 100, anything over 100 is considered growing), home improvement and decorating (though the recent trends look a bit more positive yet still well under “growth mode). Consumer Metrics Institute also reports home loans well under 100 and that finding would appear to conflict with government data suggesting home equity loans have increased.

And yet, Consumer Metrics Institute data also points to growing auto demand as also seen in monthly auto sales numbers:

Source: Consumer Metrics Institute

So what gives? The short of the long is perhaps both data sources are correct consumer sentiment may not appear “robust and as CMI points out, the fastest way to restore bad credit is to take out a loan for, say, a car or an appliance which would improve steel demand, supporting the comments made by Gerdau Market Update. Returning to the earlier question, have consumers made great progress in terms of wringing out debt? Yes and sort of, we’d conclude. Based on a ten-year analysis, we can see an improvement in savings rates:

Source: Federal Reserve Bank of St. Louis

But based on a one-year analysis, the savings rate has started to decline again:

Source: Federal Reserve Bank of St. Louis

Then again, personal debt rates also appear to have moved toward historical norms:

What should we conclude? Well, we’re still long on steel.

–Lisa Reisman

Disclaimer: The author is long Voestalpine, Vallourec, ThyssenKrupp, ArcelorMittal and Nucor

Earlier this week we mentioned that platinum is again on the rise, and prospects for the metal are looking good. However, in the wake of the supply chain nightmare the Japan tsunami caused the effects of which are still shaking markets should we be concerned that platinum demand will drastically decrease?

After all, platinum’s place in the auto industry is central to the metal’s industrial activity. Johnson Matthey, for example, supplies one in three auto catalysts globally, according to recent Bloomberg BusinessWeek report, and each one contains approximately 4 grams (0.13 troy ounces) of a PGM. But Japan’s big auto companies, accounting for a good chunk of global production, are in dire straits. Toyota reported that its March output in Japan dropped 62.7 percent year-on-year; Nissan’s fell 52.4 percent domestically, and Honda Motor’s fell 62.9 percent, according to Industry Week. These numbers caused S&P to drop its rating for these companies, as well as for three big suppliers, Aisin Seiki, Denso, and Toyota Industries. Toyota doesn’t expect for things to turn around until December at the earliest, potentially clouding the global auto market’s outlook.

But the situation for the three big Japanese auto companies may not cut into platinum demand as far as we think. Barclays estimated that the Toyota, Honda, Nissan plant closures cut demand for platinum-group metals by about 90,000 ounces so far, equal to about 0.5 percent of combined annual usage, according to Bloomberg. Other car makers should take up the slack — J.D. Power Automotive Forecasting predicted global car and truck sales to be up 6.1 percent this year, to 76.7 million units. Besides, “consumption [of platinum] will be deferred rather than lost, the bank said in a report April 15. Leon Esterhuizen of RBC Capital Markets echoed this sentiment. “Impala [Platinum] said recently that all of its Japanese clients continue to take metal even though they offered them the opportunity not to take metal right now, he said in a recent podcast. “That sort of tells you that the people who are fundamentally involved in this market understand that there is probably going to be a shortage of metal – even if you’re not using it right now, you better take it and you better start building stockpiles.”

On the supply side, then, fears of shortages for the rest of the year remain. Platinum miners are digging deeper than ever to reach the reserves; GFMS Ltd. estimates companies are able to extract 3.83 grams of the metal from every ton of rock. Production in South Africa is slated to decrease 8.4 percent since 2006, and catalytic converter demand will increase 64 percent this year over 2009, Barclays says. Finally, ETF asset flows are red-hot for platinum. As of April 26, ETF Securities’ physical holdings of platinum, for example, increased 5.6 percent since the beginning of the month, up to 487,168 ounces (right around 15 tons), according to their daily flow data.

With bullish analysts calling for platinum to increase to $2100 per ounce by year’s end, and Bloomberg’s survey predicting a 14-percent rally to a three-year high of $2,050 an ounce by Dec. 31 (it hovers at around $1835 these days), the fundamentals appear sound enough for us to say the $2,000 benchmark sounds about right. The only thing that could pull the price back from that benchmark enough might be the hit that inflation could put on Chinese consumers, forcing Chinese auto sales to be a bit less robust in the second half of this year. Otherwise, look for platinum to keep its high profile for a bit longer.

–Taras Berezowsky

Last week, a colleague asked whether we had any specific examples of companies that, due to parts shortages from Japan, had begun sourcing domestically. Off the top of my head, I didn’t have any clear examples (though I’m aware of several companies that have begun sourcing from alternative suppliers, but not alternative US suppliers). Regardless, the impact of the Japanese earthquake and tsunami has had and will continue to have an impact on the US economy and will also help fuel US inflation (though the US has done a good job of that already with a lax monetary policy). So what kind of increases can we expect? Well for one, GM recently announced that it too (following Ford and Toyota’s recent announcements) will raise prices of vehicles sold in the US starting May 2. Though the increase may not appear significant ($123/vehicle) according to this Automotive News video clip, rising raw material costs forced the hike (the first 1:50 seconds of the clip tells the whole story).

Nissan, according to the story, will also limit paint color choices, particularly red, blue and gray colors due to pigment shortages, which comes on top of a product launch delay for the Murano CrossCabriolet. In addition, Mazda has also publicly announced several thousand part shortages at the recent Shanghai Auto Show and has said it will either identify alternative suppliers or change product specifications. But with automotive PPAPs standard in the industry, the likelihood of product specification changes happening quickly seems unlikely.

On top of automotive part shortages, we have the issue of rising raw material costs impacting the industry as Don Walker of Magna explains for Automotive News (the first 55 seconds have all of the details on that topic):

It’s unlikely that we have heard the end of supply shortages or raw material price hikes. Our friends over at The Distributor Board suggest three areas to explore from a risk mitigation perspective if your firm has experienced supply shortages:

Factor 1 Cost of carrying inventory, additional bank financing

Factor 2 Cost of additional warehousing, insurance

Factor 3 Cost of developing a second source for some products

They also suggest that for firms who repeatedly find themselves in tight supply situations, adding inventory may not provide the best answer. Instead, firms may wish to reconsider alternative sources in other countries and regions. And with Japanese automakers unlikely to go back to full production levels until later this summer due to power shortages, that might not be a bad idea.

–Lisa Reisman

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