Poll: Raw materials costs to rise
More suppliers offset price hikes by indexing
Prices of raw materials, after several years of stability, may be due for moderate increases.
Nearly half of 82 suppliers surveyed by IRN Inc. expect raw materials prices to rise as much as 10 percent over the next year or so.
Prices of steel and plastic resin appear most likely to increase, according to the survey results released this month by IRN, a Grand Rapids, Mich., consulting firm.
Fifty-four percent of respondents expect steel prices to rise, while only 8 percent expect them to fall. Likewise, 64 percent of suppliers expect plastic resin prices to increase, while only 4 percent expect them to decrease.
Copper, which had big price increases over the past year or so, remains unpredictable. Forty-six percent of suppliers expect prices to rise, while 27 percent expect them to fall.
"I think rising vehicle production is one key factor in raw material prices" -- but not the only factor, said Melissa Anderson, vice president of IRN.
In 2012 and 2013, suppliers expected stable prices for most raw materials despite rising vehicle output. This year, raw material suppliers are keeping a tighter leash on production to prevent excess inventories of their products, Anderson said.
To cope with unpredictable prices, more suppliers are indexing the cost of raw materials. Indexing allows component prices to rise or fall with raw material costs, with price adjustments monthly, quarterly or annually.
Fifty-seven percent of suppliers that seek compensation for higher raw material costs have index provisions -- up from just 30 percent in 2008, according to the survey.
|Suppliers were asked which automakers were most likely to compensate them satisfactorily for rising raw material prices.|
|% of respondents||% of respondents|
|Source: IRN Inc.|
Indexing is far more popular than other cost recovery tools such as surcharges, one-time price increases, permanent price increases or renegotiated contracts.
But some automakers are more willing than others to index raw material costs.
Thirty-three percent of the respondents said Honda and Ford were likely to "satisfactorily offset" raw material price increases, followed by Toyota at 32 percent.
By contrast, no respondents said Hyundai was likely to offset price increases, followed by Volkswagen at 4 percent and Mercedes-Benz at 5 percent.
Survey respondents reported that Tier 1 suppliers as a group have grown more willing to index raw material prices for their own suppliers.
While indexing has grown more popular, Anderson cautioned that it's practical only for raw materials -- such as steel or aluminum -- that are traded on public commodity exchanges.
"Users say it's difficult to index plastics and rubber," Anderson said.
"There are so many customized formulas that it's difficult to protect your own recipe."
You can reach David Sedgwick at email@example.com.