Tuesday, July 08, 2008

Auto makers resist steel firms' surcharges

In an effort to curb the relentless rise in steel prices and bolster their own frail finances, some auto makers are beginning to push back on price increases, saying they won't pay surcharges on agreed-upon supply contracts.

The resistance is one of the first strong signals to steelmakers that their hardest-hit customers have reached a tipping point and may not be able to withstand higher prices.

Some auto makers are threatening to fight the additional charges in court, saying that financial terms of a contract can't be altered, according to people familiar with the matter.

The standoff comes as most steelmakers in the U.S., including ArcelorMittal, U.S Steel Corp. and AK Steel Corp., are engaged in the latest cycle of negotiations with Ford Motor Co., General Motors Corp., Toyota Motor Corp. and others to set the price and terms of steel bought on a contract.

Many contracts are negotiated this time of year. Representatives of Ford, GM and Toyota declined to comment on the current contract negotiations.

Both sides concede that the price in the next cycle of negotiated contracts will be significantly higher than in previous contracts, owing to higher costs for raw materials such as iron ore and higher energy prices. On Friday, the world's largest miner by output, BHP Billiton, said it is charging steelmakers an average of 85 percent more for iron ore, a key ingredient in the production of steel, than charged last year. Rio Tinto, the world's third-largest miner by output, announced an average increase of 85 percent last month.

But the auto makers are balking at surcharges steelmakers are attempting to impose.


Read the full story Santa Barbara News-Press

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