Raw material prices will eat into profit in 2011, says Daimler

Article by Christian A., on March 7, 2011

Europe's largest carmakers and auto suppliers predict that raw material prices, which are going up due to increasing demand and tight supply, will eat into profit in 2011. Both Daimler AG, which builds Mercedes-Benz cars, and German supplier Continental AG expect higher prices for goods such as steel and rubber to wipe 700 million euros ($975 million) from earnings this year.

Meanwhile, PSA/Peugeot-Citroen SA anticipates a 500 million-euro hit. Daimler CEO Dieter Zetsche said that this is certainly one of the “headwinds in an otherwise good environment.”

Rubber prices may increase up to 32% to 605 yen a kilogram ($7,407 a metric ton) by December, according to the median estimate of 10 analysts and traders.

Last month, European trade association Eurofer said that steel prices will climb faster than raw-material costs in the first half of 2011 as steelmakers cope with higher iron ore costs. Michael Palatiello, a commodities analyst at Wings Partners in Milan, said that raw materials which have an impact on carmakers, such as steel, are close to record levels.

The increase in raw materials is linked to low interest rates. He believes that the turning point will be when central banks begin to raise rates. Carmakers don't have much of an option other than to pay the higher steel prices as growing car demand in the U.S. and China, the world's two largest auto markets, reduces supply.

Autodata Corp. recently said that U.S. light-vehicle sales in February ran at a seasonally adjusted 13.4 million annual rate, the fastest pace in 18 months. Chinese car sales in January gained 16%. Its sales figure for February is not yet available. [via bloomberg]

Topics: daimler

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