When "new domestic" automakers go shopping
for steel, they don't have to look far. With a weak dollar,
high ocean freight rates and higher prices abroad, there is
plenty of incentive to source steel-even exotic specialty and
high-strength steels-from domestic suppliers.
"I'd be very surprised if the new Americans
are not working aggressively with domestic mills to increase
the level of supply," said Mark Parr, an equity analyst at
KeyBanc Capital Markets Inc., Cleveland.
North American mills have the know-how to
produce advanced high-strength steels and ultra-high-strength
steels, he said. It might just be a question of capacity-but
there could be more steel available now than in the past,
especially with the double whammy of weakness at Detroit's Big
Three and the lengthy strike at American Axle &
Manufacturing Holdings Inc., Detroit. "I don't know whether its
a structural phenomenon or more of a short-term opportunity,"
Parr said. "In any event, I think any steel the domestic guys
can produce is capable of finding a pretty happy home."
The new domestics might even prefer domestic
mills, especially taking into account exchange rate risks as
well as the uncertainty of delivery times that come with
sourcing offshore, John Tumazos, analyst at John Tumazos Very
Independent Research LLC, Holmdel, N.J., said. "I think if it
were a 50-50 toss-up, most of the new domestics would give the
nod to a local supplier. It is also politically better in the
American market to have more American content, which is one of
the reasons they are here to begin with."
Both mini-mills and traditional integrated
mills can provide most grades of automotive steels, Tumazos
said, but "if you are going to use electric furnaces it is
critical that the scrap be super, super clean or you have to
use virgin metallics like pig iron."
The ThyssenKrupp AG mill under construction
in Alabama has a stainless but not a carbon melt shop, he said,
which means it will depend on slab input to supply automotive
steels. For unique, proprietary or exotic grades, the company
likely would have to bring slabs from Germany or produce them
at its operations in Brazil.
"The simplest position is that of
ArcelorMittal (USA Inc. in Chicago), U.S. Steel (Corp. in
Pittsburgh) and AK Steel (Corp. in West Chester, Ohio), which
have good-sized integrated operations," Tumazos said. "The
electric furnace companies and the slab-importing companies can
make the demanding grades, but they have to coordinate with
their raw material suppliers and take the extra effort."
If automakers want steelmakers to go the
extra mile for more exotic grades of steel, however, then they
ought to be prepared to pay for it-especially with spot prices
hovering at record levels, he said. "If they want to get every
grade, every bell and whistle, they can't be beating the steel
supplier up on price."
The new domestics still bring a lot of
supplies from overseas to assembly plants in the United States,
according to Richard Schultz, project consultant at Ducker
Worldwide LLC, Troy, Mich. Last year, the new domestics brought
in 18 million aluminum wheels, 930,000 engines and 4.5 million
transmissions, he said, but that doesn't mean they're also
importing steel. "I have a feeling that companies like Toyota
(Motor Corp.), Nissan (Motor Co. Ltd.) and Honda (Motor Co.
Ltd.) buy most of their steels right here."
There might be occasions where automakers
have to source advanced and ultra-high-strength steels from
Europe, Schultz said, but General Motors Corp., Detroit, is
just as likely to do so as the new domestics. "These are just
very temporary things where all of a sudden someone switches
all their bumper beams to martensitic steel. You're dealing
with materials that only a few people make. They can make more,
but you can't just turn on a dime."
While there may be temporary dislocations,
the North American supply base generally is able to handle
increased production even of higher grades of steel-such as
martensitic steels-because volumes are limited, he said. "We're
not talking about a lot of tonnage, and we're talking about
relatively few parts. This is not going to be used for the hood
of a car or some other semi-structural part."
An ultra-high-strength steel, such a
martensitic steel, is more likely to be used in bumper beams or
in slender but critical applications, such as the B-pillar
(which supports the space between the doors and is critical in
withstanding side impacts) or the A-pillar (which supports the
area around the windshield).
And U.S. mills will probably be making more
high-strength steels as traditional carbon steels are replaced
by ultra-high-strength steels, such as hot-stamped boron steel
and martensitic steels, as well as advanced high-strength
steels such as dual-phase 590, 780 and transformation-induced
plasticity (TRIP) steels, Schultz said.
"It's a way to get the weight out, but these
materials aren't cheap and they're not easy to work with," he
said. Martensitic steels, for example, can't be stamped like
traditional steels and are often roll formed into slender
"If we're going to get that improvement in
fuel economy, we've got to do something," he said, noting that
aluminum, magnesium and other materials also are part of the