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Aug 06, 2023

Steel Prices: 2023 Appearing Grim for Car Part Inventory Levels

Jennifer Kary | Posted on January 12, 2023 | The Automotive MMI (Monthly

Jennifer Kary | Posted on January 12, 2023 |

The Automotive MMI (Monthly MetalMiner Index) traded sideways for the second month in a row, rising by just 2.65%. The automotive index was impacted heavily by China rescinding zero-COVID restrictions, which caused a spike in cases. However, Chinese-sourced lead and HDG steel prices rose significantly, pulling the index upward.

The overall volatility in metals used to manufacture cars continues to affect the consumer vehicle market. Wholesale vehicle prices increased slightly in December, while car demand remained as strong as it had through most of 2022. Ultimately, it was the shortage of manufacturing materials that did the most damage.

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With steel such a crucial factor in building cars, further supply squeezes would result in a lot of anxiety among manufacturers. While the past year proved strong for consumer demand, the inventory of cars just wasn't there. This was due to a number of factors, primarily China's zero-COVID initiatives. Indeed, the whole thing proved a huge headache for everyone on the sale side. The demand never let up, but there were simply no cars to deliver.

Towards the end of 2022, HDG exports went up 10%. However, imports went down a whopping 27%. To have such a widely-used material suffer such dramatic supply squeezes only increased automobile manufacturers’ anxiety. As we enter 2023, the outlook is still iffy as far as Chinese-sourced metals go. Until COVID cases flatten and Chinese metal production resumes in force, steel prices and supply will continue to suffer.

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Throughout 2022, various automobile makers handled supply shortages differently. For instance, a recent Reuters article highlighted how German automobile makers like Mercedes-Benz and Volkswagen navigated these issues. Mercedes, out of all German automobile manufacturers, reported the lowest drop in output – just 1%. This is a noteworthy feat considering Europe's energy crisis and strained supply chains.

The Reuters article also indicates how Chinese high-end brands sold 8.4% less than the year before. This makes sense, as zero-COVID lockdowns remained in effect for most of 2022. However, this also contributed to U.S. automobile inventory shortages for wholesale vehicles. After all, three of the top 10 most popular car brands in the U.S., Nissan, Toyota, and Honda, are manufactured in Asia. What's more, both Nissan and Toyota regularly source their parts directly from China. All of this significantly affected both Asian and U.S. consumer sales of these brands.

Europe's energy shortages will continue to impact European automakers like Volkswagen, BMW, Volvo, Jaguar, and Audi for the foreseeable future. These particular automobile makers have large facilities across Europe, and many of them source and manufacture parts and metal from China. Of all of these, Audi possesses the most wiggle room. This is because it also sources and manufactures its parts in places like India, Brazil, and Mexico. Others, like Volkswagen and BMW, are not as well off. These brands rely almost exclusively on European and Chinese manufacturing facilities.

All in all, the automotive industry as a whole is still recovering from COVID shutdowns. What's more, the impact could ripple on for years, as we continue to see with metal supply chain shortages.

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Filed under: Automotive, Carbon Steel, Commodities, Ferrous Metals

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