Analysis: who is exposed to higher steel prices?

Who is exposed to higher steel prices? by Zena Olijnyk
With steel prices doubling in the past two months, to nearly US$1100 per tonne in the United States, the companies most vulnerable to higher prices are are those whose end product is sold directly to the consumer, according to a UBS survey of its analysts who cover businesses who use steel in their manufacturing. “While steel companies benefit from increased profits, users of steel have to face higher input costs,” says a note from the strategy team at UBS. “And some consumers of steel are better placed to face these rising costs than others.” UBS concludes that the ability of a company to pass on prices is predominantly affected by the end market they sell into. “If selling into a consumer market, it is going to be extremely difficult to raise prices without an offsetting drop in demand.” Those with exposure to business over consumer spending are also better off, UBS says, “since their coporate balance sheets are in better shape than individuals.” By this measure, UBS concludes that the stocks with the least ability to pass on higher steel prices include: Caterpillar Inc, which makes heavy machinery; Electrolux AB, a Swedish manufacturer of furnishings and appliances; and beleaguered US auto manufacturer General Motors Corp.. Those with more ability to pass on higher steel prices include farm machinery maker Deere & Co., auto parts manufactuter Lear Corp. and the three main Japanese auto manufacturers, Nissan Motor Co. Ltd., Toyota Motor Corp. and Honda Motor Corp.