FORD THREATENS TO USE IMPORTED STEEL, BYPASS BHP
Resentment over BHP Steel's proposed price rises has provoked Ford Australia into considering importing as much as $8 million of its needs.
The struggling car maker yesterday unveiled its second consecutive operating loss and president Geoff Polites made it clear the proposed price rise was not welcome. About 18,000 of the 66,000 tonnes of steel used to make Falcons every year are supplied by BHP Steel. As much as half that volume worth about $8 million could be sourced elsewhere by a switch to imports.
``We have some purchases from BHP Steel and, yes, they have unilaterally increased their prices on us,'' Mr Polites said. ``We're not happy. Quite clearly, for any action there is an equal and opposite reaction, and we have to decide what that is.''
The increased agitation about the proposed price rise adds to the uncertain sentiment surrounding BHP Steel as it approaches its spin-off from BHP Billiton within two months.
BHP Billiton directors are keen that the BHP Steel share price remains stable after the company is separated from its parent to avoid any complaints from Australian shareholders, who will receive BHP Steel shares, or from UK shareholders, who will receive BHP Billiton in compensation.
Mr Polites said some small-volume items and pre-slit blanks supplied by BHP Steel could not be sourced elsewhere.
Ford imports about 48,000 tonnes of steel each year, mainly from Japan and mainly for use in the critical outer panels.
The price rise could result in another blow to BHP Steel's sales to Ford after an unhappy episode following the launch of the AU Falcon range.
Ford made a lot of noise about the use of bake-hardenable steel from BHP Steel in the Falcon's outer panels during its 1998 launch. This steel is relatively soft when pressed but hardens when the painted bodyshell is baked to give better dent protection.
``BHP Steel has the capability to make bake-hardenable steel and we used it for the Falcon but we had some issues, mainly on consistency of quality and price,''another Ford executive said yesterday. ``We had to take our bake-hardenable steel business to Japan.''
He said BHP Steel had worked hard on the product and ``eventually got there'', but it was better overall to rely on imports.
Ford yesterday posted a loss of $5.5 million for calendar 2001, against a loss of $16.1 million previously, after managing to stabilise revenue at $2.81 billion.
Mr Polites said every dollar counted for Ford now, as the company was investing in two projects with a total value of $980 million the revamped Falcon, known as Barra, to be launched later this year, and the all-wheel drive E265 model due in 2004.
It is believed the result was improved by profits on the sale of the old Capri factory and other land around the Broadmeadows plant, which the company has owned for more than 40 years.
Mr Polites said the $5.5 million loss was better than expected thanks to efficiency and cost saving measures such as further reducing inventories of built stock and materials and mechanising processes in the stamping plant.
He said earnings would not improve much this year, with Ford budgeting to break even in what is always a messy year when a new model is released.
``The big benefit from Barra will come in 2003 when the marketing starts to take effect,'' he said.
OK. my 2c worth as an employee of BHP Steel.
It should be mentioned that I am no way in a position to influence these types of marketing decisions.
Many factors are at work here;
Steel prices are at an all-time low world wide due to over-production. BHP has done it's part to cull inefficient operations (Newcastle) and the remaining business is world class both in a technological sense as well as a low cost producer. Around half of BHP's Steel make is currently exported.
BHP-Steel is soon to part company with BHP (now BHP-Billiton) which will become a pure resources company (mining, oil & gas) arguable the world largest. So as BHP-Steel's new board is trying to win-over the financial market in the lead-up to becoming a stand-alone company it would be a good time for a large customer (Ford) to make some noise about prices. It would surely get noticed at the highest levels of the company.
Steel for the auto industry is highly specialised, especially the outer panels. Australia's auto industry is a relatively small market on a global scale. While BHP has demonstrated it's technological ability to produce steel for this market it needs to be realised that this has to be done on mills that also need to roll steel for the manufacturing industry (fridge/freezer/waching machine etc.), construction industry (roofing, fencing , gutters etc.) food & beverage markets (tin cans, drums etc.) and so on. Australia has only 2 hot rolling mills (1 in NSW the other in Vic). With multiple product lines being produced on each. On each change of product line there are associated ramp-up, ramp-down and change over losses due to this complexity which add to the final costs.
Japanese mills in comparison have such a large (global) market that they can dedicate whole mills to single product lines 24x7 with the associated effeciency and quality benefits. Also, the freight costs Japan-to-Aust is not a hell of alot different from moving steel around within Australia despite what you may think.
The action by the Bush govt. in America has restricted steel imports to the US from Japan & Korea as well as many other countries (BHP Steel has largely been exempt due to our demonstrated action to reform our industry and the fact that we are feed steel suppliers to US Steel mills). This leaves the Japanese and Koreans looking for alternative markets to place their steel at atractive prices.
In all likelyhood Ford probbaly never intended to source a great deal of auto steel from BHP but rather demonstrate to the Japanese that an Aust. alternative supplier had the capability. This allows Ford greater leverage in negotiations with the Japanese suppliers just as the above circumstances are allowing them greater leverage negotiating over price with BHP.
It's just business.
How about Ford grow their volumes by becoming an exporter and thus benefit my business that way.
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