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Shaky Steel Market Could Be A Speed Bump For Rising Auto Sales

  • U.S. automobile sales showed an upward trend in June 2023, driven by pent-up demand, improved supply, and increased sales to fleet clients.
  • Despite rising automobile sales, the demand and price outlook for steel, a crucial material in vehicle production, remains uncertain.
  • The potential decrease in steel demand poses challenges for the auto industry, including the need to find alternative materials, the necessity to identify new material sources, and the need to explore new markets for their products.
Steel Car Manufacturing

Via AG Metal Miner

The Automotive MMI (Monthly Metals Index) continued its decline in June, this time falling by 3.28%. The aluminum and copper components of the index traded sideways. However, all other parts of the index dropped. Lead prices managed to trend more sideways in June than in May, but weak demand continues to impact lead and steel prices. Though U.S. car sales also trended higher in June, they weren’t enough to pull the automotive index upward.

U.S. Vehicle Demand Up

According to a recent Reuter’s report, new vehicle demand in the U.S. increased in June 2023.

This boost largely stemmed from improved supply and increased sales to fleet clients. However, pent-up demand for new vehicles was also a factor, as consumers who had postponed purchases due to the pandemic were now in the market for new vehicles. According to Thomas King, president of J.D. Power’s statistics and analytics division, the industry should continue to benefit from pent-up demand for new automobiles.

Analysts also predict the growth in demand for new cars will continue in the third and fourth quarters of 2023. According to AP News, auto sales increased 16.8% from April to June, reaching just over 4.1 million. Again, much of this buying stemmed from pent-up demand due to nearly two years of scarcity. And despite the predicted increase in demand, experts anticipated that new car costs will continue to increase as well. Indeed, the latest estimates predict that customers will spend $47.9 billion on new vehicles in 2022. This is an increase of more than $6 billion over June 2022 estimates. Moreover, Consumer Reports noted that the spike in new vehicle prices is also driving up the price of used automobiles, making purchasing more difficult.

Fluctuating Steel Demand and Steel Prices

The steel demand outlook in the U.S. for the remainder of 2023 remains somewhat mixed. While some experts predict high demand, others warn of potential pitfalls while remaining decidedly bearish. Indeed, there are numerous examples to consider. Among the most notable are softer manufacturing activity, a shift in consumer spending from goods to services, a downturn from the recent housing boom, and a delayed rebound in the non-residential building industry.

In its most recent outlook, the World Steel Association expressed a somewhat optimistic view of U.S. steel demand for 2023. Specifically, the WSA stated that it did not expect market contraction due to positive momentum in the automotive sector, spending from the country’s new infrastructure law, and rising energy sector investment.

Steel sees extensive use in the global vehicle production business. However, the sector will face considerable issues if steel demand becomes too low and end users do not purchase as much as they regularly do.

Will Weak Steel Demand Hurt Automobile Manufacturing?

If steel demand falls too low, the car industry will have to confront a number of issues. For instance, many companies would have to replace their steel with alternative materials, necessitating considerable research and development investments.The industry would also need to identify new material sources, which would require substantial investments in supply chain management. Finally, the sector would have to find new markets for its products. Of course, doing so would require significant investments in marketing and sales.

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Moreover, the automobile industry employs a considerable number of people. Therefore, any collapse in the industry would have a big impact on overall employment. The industry would need to invest in people’s abilities while also providing decent, sustainable work. To remain competitive, the sector would need to invest in new technologies and form collaborations with technological businesses.

By Jennifer Kary

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