ArvinMeritor to add steel surcharge as prices increase

By Tom Stundza -- Purchasing, 5/14/2008 9:50:00 AM

With hot-rolled steel sheet prices tracking to costs an average $995/ton this year, auto parts maker ArvinMeritor will add monthly commodity surcharges on all products ordered on or after June 1 to offset rising costs for steel and other commodities. The surcharges will vary on the type of raw materials needed to build a specific part, the Troy, Mich., company announced Tuesday. The company, mostly a maker of shocks and brakes for commercial trucks, will also initiate a monthly review and adjust prices accordingly.

Last year, hot-rolled steel sheet, the benchmark grade, cost an average $527/ton. At present, it is tracking to hit $995 ton in 2008, but could go higher. “As a result of the sudden and extraordinary surges in the price of steel, energy and other commodities, we are implementing a monthly review and adjustment process on all products,” says Chip McClure, CEO, in a statement. “We have a portfolio of complex products that require varying levels of commodities. We plan to adjust the surcharge as appropriate for each product line.”

In ArvinMeritor’s second-quarter earnings report issued on April 29, the company stated that the unprecedented volatility in the commodity markets – including a global shortage of scrap steel, a rapid escalation in the price of critical raw materials such as iron ore, coking coal and metal alloys, and higher fuel and energy costs, would require it to take recovery actions to mitigate a significant impact to the company’s financial results.

A shortage of scrap steel and increases in charges for iron ore, coking coal and metal alloys have pushed up steel prices, and the costs of fuel and energy also have risen, the company said. U.S. steel sheet climbed 15% to a record $850 a ton in April from the previous month after steelmakers took advantage of lower imports to pass on rising raw-material costs, Purchasingdata.com reported on April 30.

As Reuters reports, prices for such other auto-oriented metals as platinum, rhodium and copper have risen sharply since the start of the year. The price increases come at a time of weakness for the U.S. auto industry, which has seen sales fall by a wider margin this year than most executives and analysts had expected. U.S. auto sales fell 14% to their lowest annual rate in a decade in April as weak consumer confidence and rising gas prices caused sales of trucks and SUVs to plummet.

A Dow Jones News Service report notes that former CFO Jim Donlon warned investors and customers last month that it was struggling with raw material costs, especially steel, where producers were slapping surcharges of their own on orders. “These extraordinary costs will need to be passed through the food chain,” Donlon said during the company's quarterly conference call in April. Donlon is now working on the company's plans to spin off its automotive unit.