Steel Price Squeeze and Annual Coil Supply Negotiations
The automotive industry’s steel negotiations are at a critical juncture, as suppliers, particularly tier suppliers, find themselves in a tight spot when it comes to securing fair deals on steel prices. Typically, the annual coil supply negotiations see steel mills negotiating with Original Equipment Manufacturers on one side and the tier suppliers on the other. Tier suppliers are companies that manufacture parts and components for the automakers. These suppliers, despite being crucial to the automotive supply chain, have historically been at a disadvantage when negotiating with steel mills, as they are smaller players compared to OEMs.
Traditionally, in this dynamic, tier suppliers are the ones who pay higher prices for the steel used in the components they produce, while OEMs benefit from better deals on the steel prices used in the finished parts of the cars. This imbalance has caused a great deal of frustration among suppliers, especially as they face increasing price pressure on both sides of the supply chain, from the steel mills and the OEMs.
Steel Price Reductions and OEM Demands
The ongoing price squeeze in the steel market has become particularly noticeable during the 2025 negotiations, which are still underway. This year, the steel mills have agreed to reduce steel prices by €50-80 per metric ton compared to last year's higher prices. However, these reductions fall short of what OEMs are requesting, as they have demanded price cuts of over €100 per metric ton for the steel components they use in car manufacturing.
This discrepancy between what OEMs are seeking and what steel mills are willing to concede has placed tier suppliers in a precarious position. While they are likely to pay more for steel than the OEMs, suppliers are also under increasing pressure to keep production costs down. These factors have led to growing tensions among the tier suppliers, who feel squeezed from both sides.
The Pooling-By-Retail Approach: An Alternative to Independent Negotiations
In response to the price squeeze and unfair terms they feel they have been subjected to, many tier suppliers are exploring a new approach to steel price negotiations known as pooling-by-retail. Under this system, instead of negotiating their steel purchases individually, tier suppliers would shift control of these negotiations to the OEMs. OEMs would take responsibility for steel price negotiations on behalf of the entire supply chain, securing one unified price for all companies that are part of the process, including the suppliers of steel to the OEMs.
Pooling is a practice that has been in use in certain regions, notably France, where around 90% of steel negotiations are conducted in this manner. Germany, on the other hand, has been slower to adopt this strategy, with less than 50% of steel negotiations there being handled through pooling. For the German automotive sector, which has historically favored conducting negotiations independently, this shift represents a potential departure from a long-standing approach to the supply chain.
While pooling could lead to fairer pricing across the board, it also presents new challenges. OEMs would need to take on the administrative responsibility of negotiating and managing the prices of steel on behalf of suppliers, a task that could prove to be costly. Given the staff cutbacks at VW and Ford, OEMs may be unwilling or unable to handle the additional logistical and staffing burden that comes with pooling.
Price Pressure from Steel Mills and OEMs
The tension in the negotiations has also been exacerbated by a slight increase in steel prices over the past month. Steel mills were initially hoping to secure prices of €600 per metric ton for hot rolled coil, but instead, a slow rise in prices has been observed, with prices creeping up by €10-20 per metric ton, pushing prices above €570 per metric ton. This increase comes after a year of significant price reductions, which were necessary due to weaker market demand.
The year-on-year reduction in steel prices has varied from €50-80 per metric ton to potentially even €100 per metric ton, with some suppliers reporting a sharper decline. Despite these price reductions, tier suppliers are concerned that the OEMs will once again secure better deals for steel components, leaving the tier suppliers to shoulder the rising costs. If steel prices for tier suppliers rise at a higher rate than those for OEMs, the supply chain dynamics will remain imbalanced, undermining the profitability of automotive suppliers.
Tier Suppliers' Call for Fairness
The tier suppliers have repeatedly expressed their concerns about the fairness of the ongoing negotiations, particularly regarding the price reductions they have received in comparison to the OEMs. The tier suppliers argue that steel should be a neutral cost factor for both parties and that a fair 1:1 price ratio should exist between the price of steel paid by the OEMs and the price paid by tier suppliers for the steel components. However, the reality has been different in the past two years, as OEMs continue to demand steep price reductions while tier suppliers are often forced to accept higher prices from steel mills.
A buyer from a German service center expressed frustration with the current system, stating that it is “unacceptable” if steel mills are willing to provide better deals to OEMs than to tier suppliers. This sentiment has been echoed by tier suppliers, who emphasize that their position in the supply chain leaves them at the mercy of both the OEMs and the steel mills, making it harder for them to remain profitable.
Support from the Wider Industry
While tier suppliers continue to navigate the challenging steel price landscape, they are receiving some support from industry players who are not directly involved with OEMs. For instance, a buyer from a service center criticized the steel mills for trying to extract higher prices from tier suppliers after already agreeing to favorable terms with OEMs. This feedback highlights the growing frustration with the situation, as the imbalance between the prices paid by OEMs and those paid by tier suppliers continues to widen.
As steel mills and OEMs are focused on negotiating the lowest possible prices, the tier suppliers are advocating for a fairer and more balanced system that ensures equitable deals for all involved in the automotive supply chain.
