German suppliers ZF and Bosch raided along with three OEMs
Germany’s antitrust watchdog has launched a steel price-fixing investigation into six companies, including automakers Daimler, BMW and Volkswagen and suppliers Robert Bosch and ZF Friedrichshafen, according to reports last week. The watchdog suspects these German automakers and parts suppliers agreed on prices they would pay for steel products used in vehicles. Daimler, BMW, Volkswagen, Bosch and ZF confirmed that their offices had been searched and said they were cooperating with investigators. They declined to comment further. An unnamed sixth company was also raided.
The auto industry is one of the biggest customers of Germany’s steel industry, accounting for 26% of steel sales, which totalled EUR37.8 billion (USD42.1 billion) last year, according to the German Steel Federation. As per World Steel Organisation, 900kg of steel is used per vehicle on average, totalling approximately 80 million tonnes of steel used by the automotive sector annually.
The raids happen at a crucial period in steel pricing, as governments around the world crack down on dumping by predominantly Chinese steel producers. In May, the United States increased import duties on Chinese steel by more than fivefold. According to BBC News, the US Department of Commerce imposed import duty of 522% on cold-rolled flat steel used in car manufacturing, shipping containers and construction. The US Department of Commerce also decided to impose anti-dumping duty of 71% on Japanese made cold-rolled steel. Last week, the Indian government began an investigation into Chinese steel dumping after pressure from manufacturers.
It is not only China responsible for the dumping, as steel manufacturers in the US have asked the federal government to impose high import duty on cold-rolled steel imported from Brazil, India, South Korea, Russia and the United Kingdom on the same grounds. The federal government is expected to announce results of that investigation on or around 13 July.
With Beijing making it clear that it has no intention of removing the incentives for exports, other countries are also reacting. The EU is likely to follow such moves, and India and South Africa have also initiated trade barriers.
Meanwhile, automakers in the United Kingdom are already making plans to get more steel from Europe in the wake of Tata Steel’s decision to put its troubled UK plants up for sale. Automotive OEMs are said to make up around 60% of Tata UK's customers. The UK’s Brexit vote is also likely to have an impact in Tata’s decision making.
The moves could be the start of a long-term issue for the automotive industry, as what has been described as creeping protectionism of the steel industry threatens to escalate into a trade war. The tariffs on imports are relief for local steel producers, but are raising costs for manufacturers as they push the costs of tightening supply onto their customers. The moves are likely to accelerate automotive industry efforts to diversify material usage away from steel. OEMs and suppliers have been working for years already on products that are lighter than conventional steel as they chase ever lowering emissions targets.
Aluminium has been seen as a possible alternative to steel, but a number of challenges remain for the material. Realistically, steel will remain the predominant material of choice for carmakers due to the advantages it retains over aluminium for now, but the increasing price pressures will push OEMs and suppliers to find more innovative solutions when buying materials.
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