The Institute of Supply Management (ISM) in its monthly report covering May on manufacturing activity in the United States, shared a couple of data points that may indicate some worrying trends. But first the good news the manufacturing sector continued to expand for the 22nd month in a row turning in a PMI reading of 53.5% (a number over 50 suggests economic growth). Many of the indicators continue to tell a positive story about the US manufacturing economy. In particular, employment continues to grow and 14 of 18 manufacturing industries reporting results indicated growth including all metal related sub-sectors.
The Negative Economic Data
So that’s the good news. The most disturbing aspect of the latest ISM report involves two elements. The first the rate of change in most of the key sub-components PMI down from 60.4 in April to 53.5, production from 63.8 in April to 54 in May, order backlogs from 61.0 in April to 50.5 in May all appear worrisome because any drop of similar magnitude between June and May would push some of the indicators into a “contracting vs. “growth position. We should also note that “50 does not represent growth/contraction across all of the indicators so a reading below 50 does not necessarily indicate contraction. The second trend we find disturbing involves which indicators suffered from the biggest drops particularly production and new orders.
The ISM data combined with several other less-than-rosy indicators suggests to us the economy may have gone into a little lull (hopefully just that):
Consumer spending remains flat and in solidly recessionary country:
Earlier this week, MetalMiner interviewed Dr. John Henke, President and CEO ofPlanning Perspectives, the world’s leading authority on buyer-supplier relations, according to their website. The firm conducts an annual in-depth analysis of North American automotive OEMs and their Tier 1 suppliers. This year’s results, released last Monday, are a must read for any metal supplier to the automotive industry. Dr. Henke is also a Professor of Marketing at Oakland University in Rochester Michigan.
About the study: conducted annually, the study tracks supplier perceptions of working relations with their automaker customers, in which suppliers rank the OEMs across the six major purchasing groups, broken down into 14 commodity areas. The results of the study are used to calculate the Working Relations Index (WRI) based on 17 working relations variables. This year, 451 suppliers participated, representing 63% of the six automakers’ annual buy.
If all nine automakers are ranked, Mercedes would be in first place, followed by Toyota, BMW, Honda, Ford, VW, Nissan, GM and Chrysler
While the US automakers are showing big gains in several areas, the one area in which they are lagging is “OEM Trust
Over the years, the study has shown that automakers with a higher WRI realize greater benefits from their suppliers such as higher quality, lower prices and more technology sharing than those automakers with a lower WRI
The benefits of “OEM Trust show up in several important areas. For instance, one area where Toyota and Honda still have a meaningful lead over the US Big Three is in their respect for suppliers’ proprietary information and intellectual property such as patents and confidentiality of technical innovations. Another is in the supplier’s willingness to share new technology without assurance of a purchase order.
Overall study rankings appear as follows:
Source: Planning Perspectives Inc.
MetalMiner: From a metals perspective, I think our readers are most interested in the Body in White and exterior results. What are the key takeaways in terms of how metal suppliers view the OEMs?
John Henke: We only look at finished parts and in particular, 15 areas of parts. When we talk about Body in White we include the major metal components – stampings, castings, forgings, etc. With exteriors, it gets a little more complicated, but we essentially survey groups by how the purchasing departments are generally arranged within the OEMs.
The Body in White group within Chrysler has ranked the lowest in the industry for the past three years (in other words, Chrysler has the worst supplier working relations in the industry). For the past five years, Body in White has maintained the lowest rank of all the purchasing areas examined as part of the study. The areas examined include: exterior, interior, power train, electrical and electronics and Body in White.
MM: Why does Body in White consistently rank among the poorest performers?
JH: I don’t know. These suppliers are in a really tough place. There aren’t too many costs to take out and suppliers can be switched out “relatively easily. Switching costs are rather low. It’s a lot easier to switch metal suppliers than to switch power train suppliers, as an example. I suspect the OEMs can threaten metal suppliers more easily because their products are more commoditized. These suppliers need to create a competitive advantage so as not to be treated like a commodity.
MM: What do you think of this theory that commodity volatility has created more pressure for OEMs to manage costs in ongoing programs, therefore relations could be more strained as OEMs more frequently demand price concessions. Did the survey test for this?
JH: For the first time, we asked a question on that topic, specifically, “To what extent does the buyer you work with Ëœrelentlessly’ look for ways to reduce the price of the goods produced by your firm to a lower price? Survey results indicate that at least three OEMs did not score “low against that question. So we don’t see suppliers being hammered this way for Body in White and the same is true for exteriors. There seems to be nothing outstanding that seems to be driving the lower scores in Body in White.
Look for the conclusion of the interview tomorrow on Spend Matters, in which Dr. Henke weighs in on forward-looking approaches and building supplier trust.
A series of recent FT articles covering a range of topics such as global growth, commodity market volatility and aluminum demand appear to offer conflicting guidance on the direction of prices for the light metal later this year and next. Aluminum’s price correlation to oil is an issue we have raised before in recent articles. As the oil price rose, the energy-intensive nature of aluminum’s production supported the metals price even as other metals such as copper and tin fell. In the last month, the price has fallen about 10 percent on the back of a falling oil price and strengthening dollar. (See aluminum and oil’s corresponding price drops below:)
30-day LME aluminum price. Source: LME
30-day oil price. Source: Oil-Price.net
Gregory Meyer at the FT points to this correlation and suggests the falls are temporary, as surging Asian demand reduces OPEC’s once-comfortable cushion of 5 mb/d spare capacity touted at the turn of the year as being more than enough to ensure no oil shortages were on the horizon. Although oil prices have come off in a more risk-averse, Euro-crisis-fretting investment environment, the FT holds that demand is not slowing and yet the rate of new supply growth is. Sooner rather than later, this disconnect will resolve itself in rising prices again, creating support for aluminum. Even the IMF supports this position in its economic outlook, saying oil prices are set to spike again as they did in 2008 and worries this could damage global growth.
One impact of high oil prices is how it fuels inflation. Although it has remained benign in the US, the end is in sight in Europe, with Euro interest rates likely to play to the booming German economy’s tune rather than the near-bankrupt Greek or Portuguese need for low borrowing costs. Inflation in Asia and other emerging market areas has been a feature of H2 2010 and H1 2011, and will likely get worse before it gets better. Aluminum inventories, after declining slightly in 2010, have returned to growth, suggesting supply is still outstripping demand. Now standing at over 4.7 million tons, LME inventories are at record highs. Supporters say we have been here before and the forward curve is proving resilient enough to support the ongoing finance of these stocks by banks and traders, but in a separate FT article, Max Layton, metals analyst at Macquarie, warns that when interest rates start to rise, 3 million to 4 million tons of aluminum could be released on to the market, triggering a price collapse. The finance deals on aluminum have remained robust in a prolonged low-interest-rate environment, but how they will fare as interest rates rise is open to conjecture — if the forward curve steepens, they could persevere; if it doesn’t, the only option is liquidation as rollover finance costs prove unsustainable. Max Layton forecasts prices will trade between $2,400 and $2,800 a ton until then, presumably the balance of this year, before diving as low as $2,000 in the first half of 2012.
Of course, it isn’t as simple as just interest rates and the oil price — if only it was. Chinese production is said to have a marginal cost of around $2,200-2,300 per ton. If prices were indeed to fall, as Layton suggests, large swaths of the Chinese production landscape could close down, forcing China to become a net importer and hence supporting the price by raising non-China demand. The balance here is probably the true cost of production in China, the level of which is not clear and obviously varies from producer to producer. Some capacity is becoming constrained by power shortages in China, but the impact isn’t severe at the moment and the cost of production is not the deciding factor for current closures; it is power supply. If anyone has more detailed advice on the true cost of production in China, I am sure readers would be keen to hear of it further. The numbers could be a key part of the supply-demand balance and hence the price we can expect to be paying next year.
The physically backed metal ETF engine continues to move forward, as ETF Securities launched another round of industrial metal ETFs in early May. ETF Securities, a leading provider of exchange-traded products (ETPs) backed with physical metal such as gold and copper, listed their ETF products in aluminum, zinc and lead on the London Stock Exchange on May 3, according to Reuters.
Since its release, there is currently one confirmed warrant (24.766 tons) of physically backed aluminum on ETF Securities’ rolls, according to their daily tracking (compared to 131 warrants of confirmed physical copper, or 3276.551 tons, as of May 16. ETFS released the copper ETP in December 2010.)
Although the general uptake of the products has been slow, the broad concern that physical metal ETFs would squeeze inventories of the metal in times of supply chain tightness still exists, which led Andy Home of Reuters to recently analyze whether this is indeed the case.
Home indicates that there are a variety of ways to invest in copper, of which the physical ETPs constitute only a small percentage:
Source: Andy Home/Reuters
Yet copper’s tightness continues to make its popularity as an ETFS investment vehicle grow, compared to tin and nickel (released alongside copper):
Source: Andy Home/Reuters
Most of his presentation supports the fact that commodities investment is here to stay; the front end covers the history of ETFs, which clearly shows that commodity investment has gotten stronger in the past couple decades, and the numbers of current and projected holdings (JP Morgan, BlackRock) support that as well.
Some takeaways Home provides from all this:
Because interest is high and metals are becoming scarcer, investment products will continue evolving
Somewhat paradoxically, demand for “hard assets may go down after QE and zero interest rates turn around, reshaping the investment landscape
The cost structure (fees, warehousing, etc.) may curtail retail investor interest
He leaves off with an interesting question by juxtaposing the Rotterdam physical premiums for copper and aluminum (below): which is the tighter market copper of aluminum?
Zinc has dropped significantly along with copper these last few weeks as stocks have continued to rise along with a massive surge in mine production last year. One might be excused for thinking now is not a good time to be buying zinc and that the metal only has further to fall, but various reports suggest that the current weakness may not last much beyond the summer.
As Standard Bank recently advised clients, power cuts due to low water levels in some parts of China have restricted production and caused a drop in operating rates. Reduced mine output in some regions has also contributed to lower smelter operating levels in China, which, rather than a reflection of poor demand, are in fact laying the ground for price rises in the second half, according to a SMM Base Metal Briefing. As this graph from HSBC illustrates, over 50 percent of galvanized steel goes into construction industry, and over 50 percent of all zinc use is in galvanizing, making the metal as sensitive to the construction industry as lead is to automotive.
The galvanizing industry globally has been in good health with machinery, white goods and automotive all recovering well, particularly in China where galvanizers are running at about 88% of capacity. Construction, however, is still very weak in North America and Europe, and is slower in China than last year. Nevertheless, HSBC reports that combined North American, European and Japanese zinc consumption is still 16 percent below its 2008 peak, due almost solely to the weak construction market. Demand growth in Japan is now expected to be -1.8 percent this year, but reverse to +3.3 percent next.
Many point to the rising inventory levels as a sign that prices must have further to fall.
HSBC estimates the market will be in surplus this year to the tune of 340,000 tons with more to follow next year, but that by 2013, as major mines close, the surplus will likely reverse to deficit. The bank is not expecting prices to show much resilience form current levels this year, but is predicting prices above $2,300/ton for next year, a view echoed at least in terms of direction by a Reuters article last week. Construction is unlikely to suddenly turn around; the current weakness is due to many factors and sentiment is only part of it. Zinc demand is therefore relying on more of the same autos, white goods, machinery. With global growth set to slow this year, the recent falls in prices are justified, particularly when the cost of production at about $1500/ton is so far below the market, it is clear miners will continue to produce and smelters will continue to refine regardless of $100-200/ton fluctuations in metal price. Volatility and likely lower prices are therefore the order of the day this year, but if the current negativity proves as transitory as we expect then prices could well start to recover later in the year.
The iron ore price has been taken as a bellwether for the commodities super-cycle in recent years. Steel production in China has been at the core of that country’s growth story and the price of iron ore has been a major component driving steel costs across the rest of the industrial landscape. So as we read conflicting reports on China’s growth prospects, of the impact of bank reserve requirements and interest rate hikes, of falls in the country’s huge trade surplus numbers, it is pertinent to ask: where is iron ore going next?
Two recent reports to investors by leading banks contain slightly differing views, but both suggest prices will ease from Q1 peaks and will not test new highs this side of 2015. Credit Suisse can arguably be said to be closer than any to the iron ore market instrumental, as they were in getting the OTC iron ore swaps market off the ground. Credit Suisse’s reading is the market will likely weaken in the short term as Indian exports resume from Karnataka, but that the monsoons, predicted in about two weeks according to Reuters, will put a stop to the trade before it can really get underway in earnest. The bank states, however, that recent iron ore resource discoveries in China have been overblown, both in terms of the ease and the cost of extraction. In addition, expansion announcements by Rio and BHP will take a couple of years to be realized and are at a relatively high capital intensity, putting a floor under possible price falls. So much for the supply-side; on demand, Credit Suisse expects demand to recover later this year as the de-stocking evident by weaker iron ore demand in H1 runs its course and increased demand from mills tightens supply again. The bank does not give much credence to fears that the fight against inflation in China is going to impact steel demand dramatically.
Source: Credit Suisse
As this graph from Credit Suisse shows, steel production has lagged industrial production for much of this year and if IP growth holds true, it will drag up steel production in the second half.
HSBC on the other hand says that while it anticipates Chinese demand growth for iron ore to continue, the bank expects it to moderate from record double digits in 2010 to just 6 percent in 2011, lower even than the 7 percent global growth predicted. This moderation in demand will not prevent the market from remaining tight, but the resumption of Indian shipments post-monsoon will ease supply sufficiently for prices to moderate and stay lower for the next two years.
The following graph from HSBC illustrates the nature of the falloff in demand pressure and the impact the bank expects it to have on price.
As a result, Credit Suisse is sounding more bullish than HSBC and would probably consider the following graph (mapping out anticipated prices up to the middle of the decade) as being on the low side.
With the supply side remaining relatively constrained, both banks’ positions rely heavily on growth in China continuing, not just for major infrastructure projects which work to a longer time-frame but also for housing, white goods and autos driven more by consumer sentiment. However much the banks look at longer term historic trends in demand and in the tightness of the supply market, ultimately steel demand relies on a vibrant domestic economy — if that stutters, demand will too.
Whether you consider yourself involved in the scrap industry or not, the reality is that if you are a significant steel consumer then your costs are in part driven by what is happening in the steel scrap market. Not only are your costs influenced by scrap supply and demand within the continental US, but they are also influenced by what is happening to steel scrap demand in far-off Turkey. That seems hard to believe for a consumer of bars, plates or sheets in, say, Tulsa, Oklahoma, but the Turkish steel industry has, in a short ten-year period, risen to become the largest seaborne scrap market in the world and in the process sucked in scrap not just from neighboring Europe, but from the Eastern seaboard and Gulf ports of the US.
In a presentation last week at The Steel Index Scrap Conference in Amsterdam, Ugur Dalbeler, CEO of CÃŒÂ§olakoglu Metalurji A.S., one of Turkey’s many steel makers, gave an interesting presentation on the growth of the steel industry and its impact on scrap demand around the Atlantic basin.
Turkey has been undergoing phenomenal — to many, surprisingly robust — growth for much of the last decade. In spite of a dip post-9/11, Turkey has maintained a healthy growth rate to rival many emerging markets. In 2010 it delivered 8.9 percent GDP growth, easily the best in Europe and was third among the G-20, behind only China and Argentina, but ahead of India and Brazil. Driven largely by a construction boom both domestically and in neighboring MENA (Middle East and North Africa) markets, Turkey’s steel industry has grown 95 percent since 2001 and 2010, outperforming all other markets except China at 313 percent and India at 145 percent.
Source: Steel Index Scrap Conference
Nor has Turkey followed the Asian model of building largely integrated steels mills around the BOF blast furnace process. Constrained by capital, most growth has come from EAF mills in the Nucor mold, with most blast furnaces a decade (or more) old. But demand for flat rolled products is rising; as local downstream manufacturing becomes more sophisticated and developed, there are now five steel plants producing HR coil compared to only one in 2009. Three new ones are planned by 2015 and three new blast furnaces are due to start up next year. Although Turkey has followed the Nucor business approach, mills there lack the technology to produce high-quality flat-rolled products from the EAF production route. Although BOF mills do consume scrap in the blast furnace charge, it is the rise of EAF production that has driven Turkey’s scrap consumption. Last year, Turkey imported over 20 million tons out of a total 25.3 million tons of steel scrap consumed, or 19 percent of global scrap imports and still rising. 2011 imports are expected to top 22 million tons.
Source: Steel Index Scrap Conference
As this graph shows, Turkey’s imports by region have changed, as total imports have risen during the second half of the decade. The US has become progressively more important as a source of supply at the expense of Russia. In part, this may be due to depreciation of the US dollar; also, to rising domestic demand in Russia and to restrictions imposed by the Russian authorities to preserve scrap supplies for domestic producers. But the impact for the US market has undoubtedly been to reduce scrap availability domestically and raise prices as processors have both domestic and export markets vying for supplies. With Japan out of the market this year, following the tsunami and aftereffects of the reactor problems, US West Coast suppliers are also going to see rising Asian demand pulling scrap westwards while Turkey pulls it east.
Turkey’s steel production is projected to rise further, right through to the middle of the decade, with EAF melting capacity along expected to increase from about 35.8 million tons annually this year to 40.9 million tons by 2015, adding a further 5-6 million tons of demand to the seaborne scrap trade. This will continue to place a floor under scrap prices in the US and Europe, particularly if domestic consumption rises as expected in those markets as the recovery continues.
LME metal prices have not fallen across the board in recent days, and while relative minor dollar strength has played its part, a much bigger factor is fear of slowing metals demand, both in China and from stuttering US and European markets a general risk of attitude from speculators is the order of the day. Some metals such as copper and silver have come off significantly; others have fallen more modestly such as aluminum, but the intriguing one is lead.
As this LME graph shows, the price was erratically fluctuating on either side of about US $2600 per ton during the first quarter before falling with the other metals for much of the last month.
As the price has fallen, successive LME announcements have revealed the identity of the dominant holder on the market. At the beginning of May, Glencore was identified as holding between 30 and 40 percent of stocks, which increased to 50-80 percent last week, according to LME data reported in a Reuters article. The suggestion is Glencore may be holding this for delivery to a client but it would have to be a pretty big client if that were the case. The value of 80 percent of LME lead stocks (some 240,000 tons) at current prices of $2,380 per ton is about $570 million.
Even at nearly 300,000 tons, current inventories represent only about 2 weeks of supply, according to a Reuters Insider article. This tightness has been lending support to prices as automotive battery demand has continued to rise on the back of strong auto sales. According to Businessweek, auto sales in North America are still rising strongly in spite of poor house prices (previously a source of big ticket funding through refinancing) and high unemployment. The only cloud on the horizon being production losses that may result during Q2/Q3 from parts shortages due to the Japanese earthquake. Meanwhile, the WSJ reported auto sales in China, while slowing, are still rising in single digits. In the January-April period, overall auto sales grew 5.95 percent from a year earlier to 6.53 million units, while passenger vehicles sales rose 7.55 percent to 4.99 million units, the China Association of Automobile Manufacturers said.
However, it is fear that car sales could slow in the world’s largest auto market that are probably having the most significant impact on the market fundamentals. The market remains technically in surplus according to the ILZSG (International Lead and Zinc Study Group), but at 17,000 tons, the surplus is less than one day of global consumption. To what extent the ILZSG takes account of real rather than apparent demand is not clear; with traders like Glenore taking metal direct from Australian mines and delivering it to Asian warehouses, consumption could be said to be higher than it really is. Physical lock-up by large traders is supporting the backwardation or premium for cash metal that otherwise would almost certainly evaporate. Glencore has probably only come clean because of its IPO prompting greater transparency and a desire to have their assets valued at market, but other traders and hedge funds have no such imperative.
Standard Chartered expect prices for all industrial metals to recover as optimism in the global economy returns and lead to fare better than most as the current surplus is reversed by growing demand. A reduction in headline LME inventories would go some way to support that sentiment and will be a key metric investors watch to gauge likely future price direction.
Rising commodity prices are undoubtedly on everyone’s mind, from producers to distributors to buyers (not to mention investors), and even the latest major commodity selloffs in silver, gold, copper and oil are not quite enough to make anyone in the metals industry believe that commodity prices will stay down for long.
At a recent metal industry forum hosted by Grant Thornton and Winston & Strawn LLP in their Chicago office, executives from Ryerson, Inc., GE and others spoke about the current condition of “Today’s Metals Industry. (I can’t resist mentioning the deliciously cheesy subtitle: “Steeling Itself for 2011 and Testing Its Mettle for the Future.) While MetalMiner has already covered much of what they spoke about GDP numbers, auto demand, the OCTG market, wind power, and the China effect, for example — one seemingly under-reported issue that came up related to how inventories are playing into pricing now and in the future.
Both steel and aluminum inventories shot up from December 2010 to the end of January (mainly due to seasonal restocking), but during Q1 2011, MSCI reported year-over-year steel inventory increases of roughly a quarter every month, and aluminum inventory increases of roughly a third every month. Steel inventory peaked over 8 million tons at the end of March.
When posed with the question of how inventory levels have changed during the upturns and downturns at the Chicago metals forum, Brian Deck, vice president of finance and treasurer of Ryerson, recapped the past couple years of the industry. In 2008, demand was strong and supply was tight, but by the summer, things really got overheated, he said. MSCI data showed 2-3 months of inventory at the time, but service centers ended up holding 4-5 months worth of inventory, according to Deck. The economic value loss that middlemen took was huge, and the market took most of 2009 to rectify. 2010 inventories were replenished to a degree, but current levels are lower than they’ve historically been.
“Right now, OEMs are tight on inventory, service centers remain tight, and this bodes well for higher commodity prices, Deck said. He continued, “Service centers are living hand to mouth. The mom and pop [centers] will take positions, buy 6 months of inventory, but the big guys are not taking positions.
Greg Eck, senior vice president of metals and mining for GE Capital in the Americas, also weighed in by saying that historically, the ebb and flow of inventory had to do with imports from Turkey, Russia, and others, and purchasers were literally watching metals devalue as they were shipping. According to Eck, a GE-commissioned CFO survey showed that 80 percent have had a fundamental shift in inventory philosophy since the ’08 crash and ’09 recession.
Ultimately, what all this means is that there’s a lot of volatility in the market that is becoming harder and harder to offset. Lars Luedeman, a director at Grant Thornton, whose clients are mainly in the auto sector, warned not to lose sight of risk. If you have middle market companies with a broad range of products, he said, “you can’t eliminate that risk totally. Within two months, prices can move pretty quickly. If there is slowdown in China, it will quickly impact the markets here and have negative impact on inventory levels.
Recently, Steel Market Update wrote that for flat rolled steel, “the MSCI had U.S. service centers holding 1.9 months supply of flat rolled steel well below the 2.4-3.0 levels normally held at the service center level. According to the publication, this means that domestic mills believe the service centers are forced to buy steel “within a relatively short period of time. Much of this data points to the fact that inventories are a pretty important driver of prices. Import/export activity should play a key role as we get into the summer months.
This is the second part in a multi-part series. Keep an eye out for the next installments in the coming weeks. You can read the first post here.
Safety has long served as a key buying criteria for consumers looking to purchase a new car. One need only look at Consumer Reports or the Insurance Institute for Highway Safety to see the importance safety plays in consumer purchases of cars. According to Michael Jarouche, Vice President of Global Sales and Marketing for Humanetics, a firm that manufactures crash test dummies, the industry studies and implements safety solutions along one of three areas: passive safety this refers to the safety devices within the car including the sheet metal, car structure, etc., that form the basis of the car’s crash worthiness capability. Passive safety includes the product design elements; for example, good weld nuts, good support, air bags, belts etc. The second area of safety, called “active safety includes design features such as ABS anti-lock brakes and vehicle dynamic control. Active safety has little to no relevance in the discussion of aluminum v. steel within the automotive industry, according to Jarouche. Finally, the area of information safety that includes elements such as devices to monitor the occupant and/or gauge what the driver is doing behind the wheel will not comprise any portion of the analysis on safety either. Instead we will focus our attention solely on “passive safety and the relative performance of aluminum v. steel.
Larger crush zones “which serve to reduce forces on vehicle occupants in a crash
Aluminum structural members can collapse in a predicable manner in severe impacts
Better corrosion resistance “minimizes deterioration of the crash energy absorption capabilities over the life of the vehicle
On a pound per pound basis, aluminum absorbs 2x as much crash energy as typical automotive steel the argument goes on by stating as vehicles “lighten up aluminum will help with fuel economy, performance and safety
But as that same study points out, “There is little doubt that larger and heavier vehicles provide more safety for their occupants. And therein lies the rub until/unless more vehicles on the road contain aluminum vs. steel, the relative crash worthiness of two like vehicles, one with more aluminum, the other with more steel, will provide the steel car with a safety advantage. Thus, some industry participants have advocated a move toward vehicle to vehicle compatibility that would call on industry to move toward standardization of vehicle weights, ground clearance, bumper height and the shape of the front end. This particular issue encapsulated in an “unintended consequences argument says that knowing heavier cars already exist and make up some proportion of total cars on the road, consumers, in their own self interest, will opt for “heavier and safer car choices thereby perpetuating the problem.
In the meantime, we asked Michael Jarouche to share with us where he thinks this debate will go over the next ten years. “Steel isn’t going away at all although bumpers went from steel to plastic as well as fenders, he continued, “the main body, undercarriage and beams, those are steel made out of steel and I personally believe steel has better energy management over aluminum for these specific applications. He went on to say that steel allows for better stamping and different welding techniques that aid in the energy management process. The core structure for the most part is still steel (and that won’t change).
Next week we’ll walk through the steel industry’s arguments regarding safety as well as take a more technical look at some of the manufacturability and design issues associated with using steel and aluminum.