Worldwide demand for steel and rapid growth in the Chinese industrial market will diminish over time, but steel prices are likely to remain high through the rest of this year, according to the American Iron and Steel Institute.
Ron Krupitzer, senior director of automotive applications market development for the institute, said raw material costs also are contributing to the elevated cost of steel. For example, the cost of scrap iron, coke and alloy products, are at all-time highs. Estimates are scrap steel prices will approach $400 a ton this month.
The increase has helped steel makers turn profits, but has hurt automotive suppliers that buy steel.
Automakers are using more steel, and higher-strength steel in vehicles to meet more rigorous crash standards. About 55 percent of a typical car is made from steel, but the material accounts for only about $700 of a car's actual cost, Krupitzer says.
"Even if we increase the $700 average cost by 10 or 20 percent, that's still a $70 to $140 increase on a car that might sell on average for $25,000," he says. The real impact is felt by parts suppliers.
This is the first time in 10 years or more that steel makers have the potential to profit, he adds. Krupitzer says the steel industry are not yet "fully robust," but is becoming leaner and making strides in new technology.
Says Krupitzer: "If you built a business plan based on extraordinarily low steel pricing because of world oversupply, then that business plan probably wouldn't succeed in a time of higher demand, and that's what we're seeing now."