CHICAGO -- High steel prices that have crushed U.S. auto parts suppliers' results for the second half of the year show no signs of abating into 2005, analysts said.
And rising costs for other metals, resins and raw materials that largely have been pushed aside in the talk about steel prices also may pressure 2005 results, they said.
"For the auto parts sector as a whole, we continue to believe 2005 consensus earnings expectations are at risk by up to 10 percent to 30 percent because of higher steel costs," J.P. Morgan analyst Himanshu Patel said Wednesday in a note.
Several large parts suppliers have cut earnings forecasts for the second half of 2004, citing rising raw materials costs, North American production cuts by General Motors and Ford Motor Co., and other company-specific factors.
Delphi Corp. and Visteon Corp., the two largest U.S. parts suppliers, have warned on results, as have Tower Automotive Inc., American Axle & Manufacturing Co. and Hayes Lemmerz International Inc.
The pressure from steel and resin costs appears largely indiscriminate across the sector for 2005, but may hit some large suppliers harder than others, Patel said.
"Steel, plastics, aluminum and lead costs are definitely a negative for probably everyone, though for some it won't show up as much (in results)," Standard & Poor's credit analyst Martin King said, adding that companies have almost no ability to increase prices to offset higher materials costs.
Many parts suppliers will lock in contracts with steel producers for 2005 in the next few weeks or months, and those costs will probably exceed 2004 levels, King said.
Johnson Controls Inc., which makes seats, interiors and batteries, releases its fiscal 2005 outlook on Friday. Other suppliers are expected to offer 2005 forecasts along with quarterly results in the next few weeks.
While steel has played a factor in compressing results for the largest suppliers, it also has been blamed for putting two parts-casting companies into bankruptcy and pushing other small suppliers close to seeking court protection.
Delphi and Visteon have sought to diversify, but rely on former parents GM and Ford, respectively, for a large percentage of their business. GM also accounted for more than 80 percent of American Axle's net sales in 2003.
Privately held Citation Corp. and Intermet Corp., both parts casting companies, filed for bankruptcy in September. Casting companies are heavy consumers of scrap steel priced as available and often buy on the open market, leaving them especially vulnerable to rising steel prices.
Steel prices cannot be ignored, but a rise in the price for performance plastics used in auto production likely is another industrywide headwind for 2005, Bear Stearns analyst Domenic Martilotti said in a note.
"With discussions on the dramatic rise in steel prices front and center, we believe that another major commodity -- plastics -- has been largely ignored," Martilotti said.