Automotive suppliers consider OEM steel purchase pooling
German carmakers and automotive suppliers might have to reconsider their method of negotiating with steel mills over annual coil supply contracts.
Automotive tier suppliers often feel the most hard done by in the talks, in which mills on one side and OEMs on the other are the bigger and stronger opponents. In this triangle, tiers are traditionally the ones that end up paying higher prices to the mills for steel, but receiving lower prices from the OEMs for the steel component in the parts they supply (see separate story).
In comparison with last year’s relatively high prices, “the mills this time conceded €50-80/tonne [$52-83] lower prices,” says a manager at an automotive supplier. This figure was also heard from other sides. But in the negotiations for finished car parts, OEMs are heard entering the talks requesting a year-on-year reduction of €100/t or more for the steel component.
Tier supplier say they could withdraw from purchasing steel individually. Instead, all steel negotiations would be put in the hands of the OEMs in a practice called pooling-by-retail, with one valid price for all coil distributed among all players in the chain.
According to the manager, pooling in France accounts for 90% of all negotiations, but for far less than 50% in Germany. So far, German negotiators trusted their own expertise most, but the squeeze in recent years has made them increasingly willing to hand over that responsibility. After all, pooling itself is a cost factor for the OEMs, with the need for additional personnel in times when VW and Ford have announced staff cutbacks. “And mills do not like pooling much, because of the same reason,” he tells Kallanish.
“We want fairness from the OEMs, not better deals,” the tier manager emphasises. “We are the sausage in the sandwich,” he adds.
Christian Koehl Germany
Automotive tier suppliers fret over steel cost squeeze
Automotive steel suppliers in northwestern Europe have reason for concern as they might again end up as losers in annual coil supply negotiations.
Most annual negotiations between steel mills and big buyers, often carmaker OEMs, have been completed.
Outstanding deals to be struck with tier suppliers further down the chain should ideally repeat the results of the deals with OEMs. “Steel should be a neutral cost factor between us [steel buyers] and the OEMs [their customers]; a 1:1 ratio would be the best case,” a manager at a tier supplier says. But this has not been the case in the last two years “and it is threatening our business”, he tells Kallanish.
A manager at one mill has already suggested that upcoming agreements on the tier level could result in somewhat higher prices than those struck earlier with the OEMs, as spot market prices climbed slightly in January. Mills might not be getting the €600/tonne plus ($622) they wanted for hot rolled coil, but a slow rise has been observed in deal prices, by €10-20, to above €570/t.
The annual contract deals so far appear to have resulted in a year-on-year reduction of €50-80/t from last year’s high level; some say the reduction has even been steeper, inching towards €100 year-on-year.
A lower y-on-y reduction – effectively meaning higher paid prices – would be bad news for the tier suppliers, who are already sufficiently concerned about their negotiations with the OEMs.
They are nevertheless receiving support from players not directly involved with OEMs. “It is unacceptable if mills concede less – y-o-y reduction – to the tiers than they did to the carmakers,” a buyer from a German service centre says. “If mills want fair deals, they should have bargained better prices with the OEMs, rather than trying to cash in on the tiers now.”
Christian Koehl Germany