Scrap Material Prices
Cash 4 Cars Cleveland is back with another posting related to the world of auto scrap and old car scrap. As one of the Cleveland-based sites who junks cars, we are well aware that commodities pricing among the materials which compose our vehicles, are the major factor in the price a seller receives when we buy scrap cars. Our next topic discusses how auto manufacturers and suppliers are realizing larger profit margins resulting from the lower costs of certain metals. In a December 7, 2015 posting on autonews.com composed by David Sedgwick titled ‘Who gets windfall as material costs fall?’ explains the following: “Now that North American auto production is rising to record levels, raw materials such as steel, aluminum & copper ought to be more expensive, right? Instead, they’ve gotten cheaper. Automakers and suppliers are spending about $1,325 per vehicle for raw materials — $669 less than in August 2014, according to a study released last week by AlixPartners. Prices are soft because Chinese manufacturers have sharply scaled back their purchases, while economies in Europe & Japan remain shaky, said Mark Wakefield, director of AlixPartners’ automotive practice.
AlixPartners calculated costs by tracking prices of 15 raw materials from August 2014 through October 2015. Every commodity had a big decline, from palladium, down 25%, to crude oil, which dropped 51%. It’s not just manufacturing costs that have declined; shipping costs are down sharply. Diesel fuel prices fell 25% to $2.90 per gallon in that same period. Over the years, automakers and suppliers have developed two major strategies to cushion the shock of price fluctuations. The first approach is for automakers to buy commodities such as steel or aluminum in bulk and then resell to their suppliers. This allows automakers to get bigger discounts on volume purchases. The second strategy is to index the price of certain raw materials so that a component’s price can be adjusted every 3-6 months. This works for steel & aluminum — materials that can be bought or sold via public exchanges. Indexing gained popularity when raw material costs were going up. Automakers and suppliers realized it was inefficient to renegotiate contracts every time raw material prices fluctuated. Indexing created an automatic mechanism to deal with that.
AlixPartners estimates indexing covers just 70% of total commodity purchases, leaving the rest open to negotiation. If it’s a specialized material, for example, there may be no public benchmark price. So the onus is on the automaker to call in the supplier and try to claw back earlier expenditures. And that’s what is happening in the current environment, says Wakefield. Even if a material is indexed, the supplier benefits if the contract calls for price adjustments only every six months or so, rather than on a quarterly basis. Brent crude oil, the international benchmark for oil prices, will average $57 a barrel next year, according to a poll of 11 banks published last week by The WSJ. That’s up from $44 a barrel last week but down $100 in the summer of 2014. Likewise, steel prices seem certain to remain weak for a while. On Nov. 6, ArcelorMittal announced third-quarter losses of $700M, and the world’s largest steelmaker blamed it on cheap steel exports from China and weak customer orders. The dollar is stronger than ever, so raw materials can be imported at bargain rates. Nevertheless, Wakefield is advising clients to update their indexing formulas to take the guesswork out of raw material prices.” This link has the full article.
To summarize, as we have indicated in earlier posts, the auto scrap and old car scrap markets have plummeted this year. Those of us who buy scrap cars (who junks cars) have felt this impact, particularly in the per ton scrap price. The result is when you sell your junk car to us currently–the quote for a junk car price is much lower.
We buy scrap cars
Cash 4 Cars Cleveland is the premier provider who junks cars in Twinsburg, Lakewood and Linndale Village. When we buy scrap cars, we do so for the purposes of recycling of both the components and to convert the materials to serve as ‘reduced cost’ raw materials toward the production of new goods. Central to the auto scrap market is the belief that it is critical to avoid dumping auto related waste and old car scrap into landfills. Those seeking to sell a car for cash in Aurora, Shaker Heights or North Randall, are encouraged to contact our scrap vehicles buyer today. Residents of Cleveland Heights, Wickliffe and Brecksville can generally have their junk vehicle picked up the same-day. On Saturday, our junk car hauler can get you cash for a car regardless of whether the vehicle is located in Solon, Fairview Park or Eastlake. Those selling a junk car in Bratenahl, Chagrin Falls, or Seven Hills can contact us @ (216) 359-1010.