Fuel efficiency targets will damage US, EU automotive sector, Fitch says

Tough new vehicle fuel-efficiency targets in the USA and Europe are likely to lead to lower sales volumes for steel companies, ratings agency Fitch Ratings said.

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Higher prices for lighter, stronger steels should benefit well-funded producers that have the resources to invest in product development rather than companies that make less-sophisticated components, such as heavier structural parts.

Steelmakers will have to make lighter products without compromising strength or safety in the face of competition from aluminium, magnesium or carbon-fibre alternatives.

ArcelorMittal has indicated that components made from its third-generation Advanced High Strength Steels will be up to 27% lighter than those made using current grades, while retaining similar strength.

A weight reduction of this magnitude implies a similar fall in steel volumes consumed by the automotive industry.

“We expect companies such as ArcelorMittal or South Korea’s Posco to be relative beneficiaries of the changes because they have the financial resources to invest in new product development and have close global partnerships with auto manufacturers,” said Fitch.

The continued increase in the number of vehicles produced, due to demand from emerging markets, should offset some of the decline.

The new steels will also sell at a significant price premium to existing standard automotive grades, reflecting the additional processing required and the special characteristics of the steel, according to Fitch.

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