Steel Industry Consolidation Coupled With Higher Tariffs Gives Steelmakers Greater Pricing Power In Auto Contracts.

Consolidation through mergers and acquisitions in the steel industry is likely to result in higher steel prices for automotive producers. Already in the last year, companies like United States Steel Corp. and AK Steel Holding Corp. raised contract prices on steel as a falloff in industry capacity and tariffs on imports of foreign steel helped prices rebound from 30-year lows.

Now, with International Steel Group set to buy bankrupt Bethlehem Steel Corp. and National Steel Corp. almost sure to be absorbed by either AK Steel or U.S. Steel, an oligopoly of large automotive steel suppliers will likely have the upper hand in pricing.

For years, U.S. steel companies, which supply most of the steel used by Big Three automakers were unable to raise contract prices as competition from cheap foreign imports kept steel prices low. The tables turned last year, however, as steel prices rose when several bankrupt steelmakers liquidated -- removing a chunk of industry capacity -- and the federal government slapped hefty tariffs on imports of foreign steel.

The auto industry has since condemned the tariffs, saying the added costs have forced companies to cut jobs and consider importing steel from countries exempt from the tariffs.

Ana Lopes, director of government relations for the Motor and Equipment Manufacturers Association, which represents the automotive parts industry, said steelmakers have "unilaterally voided terms or prices of many steel contracts" as the steel costs rose anywhere from 20 to 60 percent in the last year.

Adding to tensions between the two industries, AK Steel said it filed a complaint against General Motors in an Ohio court that seeks to recover at least $25,000 in costs related to increased testing and quality control measures. AK Steel spokesman Alan McCoy said the company estimates the costs to be "in the realm of millions of dollars." McCoy also said AK Steel would continue to fulfill its obligation to GM under the contract despite the dispute.

GM countered, saying it "will not pay a premium, however characterized, to AK or any other supplier to receive the quality of products that they previously agreed to provide."

Regardless of who ends up on top in the dispute between GM and AK Steel, however, experts agree that after years of being the underdog, steelmakers are enjoying having the upper hand. "When it comes to steel, there's no question they have a lot more leverage today than they had a year ago," said John Henke, president of Planning Perspectives Inc. and a specialist in buyer-supplier relations. "There isn't much wiggle room for anybody who uses steel to find alternative suppliers."