Volkswagen AG, PSA Peugeot Citroen and Fiat SpA, already working to counter a slump in domestic car sales, may struggle to cope with rapid increases in steel costs following changes to iron-ore pricing setups.
Carmakers in the European Union want the bloc's antitrust regulator to "tackle distortive developments" after producers of iron ore, the main raw material in steel, announced price increases of as much as 90 percent and ended long-term supply contracts, the European Automobile Manufacturers' Association, or ACEA, said yesterday.
"The auto industry simply couldn't handle exposure to highly volatile material prices," Arndt Ellinghorst, a London- based analyst at Credit Suisse Group AG, said in a telephone interview. "Adding this to the already low visibility is a killer for carmakers."
Vale SA and BHP Billiton Ltd., the biggest and third- biggest producers of iron ore, ended a 40-year-old practice of selling their product under one-year contracts and shifted to three-month sales agreements. Steelmakers said they will be compelled to raise prices paid by carmakers by one-third and replace their own long-term contracts with quarterly pricing.
"If you move from a yearly contract to a quarterly contract, you're much more exposed to volatility," Sigrid De Vries, a spokeswoman at the Brussels-based ACEA, said by telephone. "Any cost increase is critical, particularly in the fragile economic circumstances we have today."
Steel accounts for an estimated 10 percent to 15 percent of the manufacturing cost of a car, de Vries said.
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