Tuesday, 10 November 2015

Steel prices and car forecourt prices.

Andrew S. Mooney left the following comment at Tim Worstall on top form:

"That’s us, of course – we are all consumers of steel in tin cans, cars, fridges and the skeletons of lovely high rise buildings. This can indeed be seen as unfair on other producers of steel. But we don’t run the economy for the interests of producers; we run it for us, the consumers."

I have not seen a reduction in the price of tinned food off of the back of these surpluses.
I have not seen a reduction in car forecourt prices...

Well why would you notice?

An average car contains one ton of 'steel'. I don't know what particular kind of steel, but...

Until either Chinese capacity is reduced or a resurgence in Chinese economic growth is realised, prices will continue to slide. The price of slab steel has dropped by 40% from around £318 a ton to under £191 in the past year.

Maybe car manufacturers use a higher grade more expensive steel. But the cost saving to car manufacturers is only a couple of hundred quid per car and of course you wouldn't notice that, quite possibly it's the car manufacturer who benefits from most of the cost saving. It's still our gain and China's loss.

If we do the same calculation for tinned food, we are talking fraction of a penny, which you wouldn't notice either.


Andrew S. Mooney said...

"...But the cost saving to car manufacturers is only a couple of hundred quid per car and of course you wouldn't notice that, quite possibly it's the car manufacturer who benefits from most of the cost saving. It's still our gain and China's loss..."

Slab steel is the absolute basic grade of material that is created by industry, if you'd bothered to read the second post, you'd see that I mentioned the idea that you probably have to have additional, higher value added steps to make a fundamentally profitable process, which China doesn't bother with. Most car body steel is rolled steel that processed using hot rolling and is then literally stamped to shape...Not much extra value there though as plants like that of Tata Steel in Stocksbridge, Sheffield are constantly having to rely upon the fact that they are owned by Tata group, who offer steady business in the form of supplying to companies like Jaguar Land Rover, who are owned by Tata Group as well.

...Trouble is, even if the difference is "just" a few hundred pounds a car, leaving aside production rates of thousands of vehicles a week, most cars sold in the UK are not made by UK companies. All of that money winds up back in the Maronouchi District, in Toyota City, in Detroit Michigan, and western Germany.

If they are not passing the benefit on, consumers are not benefitting from lower prices on materials, they miss out.


P.S. How would I notice?

1: Because I work in the industry.
2: Because if lower prices were translating into falling prices for consumer goods, journalists would be keen to point this out. Think to the situation with Shale Gas, in that it has transformed industry competitiveness in the US, and Jim Radcliffe is keen to import it to run Ineos's operations in the UK in the face UK government vacillation. Lower commodity prices can translate to lower consumer prices for all sorts of things and the press usually emphasises this.
3: Did you read the piece in the Economist? They reckon it's being dumped. It's not just me.

Bayard said...

When Tim W talks about the consumers of steel, doesn't he mean the people in the UK who are buying the steel off the Chinese, not the people who are buying the steel of the people who are buying the steel off the people who are buying the steel off the Chinese?

However, I take Andrew's point that the people who are buying the steel off the Chinese, by and large, are not British, so we British have nothing to thank the Chinese for.

Lola said...

@ASM. Oh but car prices are falling, and have been doing so for years. These reductions are the result of the classic competition driven developments. A 1950's Ford Pop cost about 550 quid and a 2015 Focus costs about 16000 quid. Taking into account inflation - the destruction in the value of money thanks entirely to government failure - the Focus is the cheaper car - and hugely better made and equipped.

Going back to the specifics I understand that the steels now used in unitary construction car bodies are very high strength and used very efficiently.
Plus lots of cars now also use aluminium and other non steel materials. Therefore the actual raw steel (i.e. before being worked) is very small value in comparison to the car selling price.
Plus, from memory the factory gate price of a car is ~50% of its retail price, making the proportionate value of the steel content even lower.

For low margin car makers - Ford, VW - the profit per car is probably about £300 per unit. For Porsche its about £10,000 per unit. Therefore the scope for price reductions are minimal.

A reduction in the price of steel would have a small effect on individual car prices and thanks to the supply chain effect you would not expect to see any of that reduction for some time.

Andrew S. Mooney said...

"For low margin car makers - Ford, VW - the profit per car is probably about £300 per unit. For Porsche its about £10,000 per unit. Therefore the scope for price reductions are minimal."

Erm, OK, but that is kind of serving my point. If the profits are this low per unit, and materials prices fell from say, £318/ton to £191/ton, and you're using that much steel in a car, you've added substantially to your bottom line. The fall in materials prices is not much per vehicle owner, but to the company it is pure gravy across a production run of a say, half a million cars a year. And that particularly matters from the perspective of UK consumers, as since the car manufacturer is foreign owned, the money is lost both to them and to "UK PLC" at the same time, in a way that just isn't the case when a Japanese person buys a Japanese car or an American buys from Detroit.

One final thought is a further hidden lever: Finance. If you buy a car upon a payment plan, which many people do, those few hundred pounds they've quietly charged you as extra across say, 36 months at a normal APR are adding up to additional money. Little wonder most car companies are in the business of offering finance to pay for their product and don't like it if you literally offer to pay in cash.

"Plus lots of cars now also use aluminium and other non steel materials."

Only very, VERY high end ones, including say luxury brands or stupid performance machines where weight is everything and money is no object. This is my own field and the expense of fabrication of composite parts is such that they have remained uncompetitive except for situations like say, the Reliant Robin, where you used sprayed chopped strand fibreglass to create vehicle panels. Custom bumpers and spoilers also use this technology but not the fundamental crash structure where steel is useful because it is deformable and can absorb energy, where composite parts literally just shatter into pieces. The original Aluminium spaceframe car was, if memory serves, the Audi A8, which was a seriously luxurious vehicle and still is.

Aluminium engine blocks are a large single point weight in a car and so it makes sense from the perspective of engineering to substitute them for cast iron just on grounds of handling, as well as the quick gain that they then offer in fuel economy. They are the only situation where the change in materials has successfully occurred.

Additional to this: Aluminium is capable of being glued. But your average mechanic cannot weld it. Good luck repairing it as a result.

Lola said...

ASM. Nope as to adding to the bottom line. I would be surprised if it's a tenner per car. Don't forget that factory gate prices are ~50% of retail.

As to the location of the owners meme, that the standard fallacy. The wealth is created here and the wages are paid here. Industry is international, and that benefits everyone.

Agree with your technical comments, generally. But look at Gordon Murray's iStream Carbon concept ( http://www.gordonmurraydesign.com/news-articles/gordon-murray-design-announce-istream%C2%AE-carbon-a-revolution-in-automotive-manufacturing.html ) if you want to see how light weight composite space frames can be made at low cost for every day vehicles.

IMHO the next series of efficiency gains will be achieved by taking weight out of cars, and I think that there is loads of scope for that. from memory the original Golf GTi weighed 810 kgs, the current one is 1328 kgs.

As regards aluminium space frames (like the Elise - which isn't really a space frame) then you could imagine a modular repair approach. Unbold the body and bolt in a new chassis. You can do that on an LR Defender.

Lola said...

ASM. FYI from memory The Audi A2 was also an aluminium space frame.

Graeme said...

AWQndrew...so how much would you increase the retail price of your chosen car as a result of this? That is ythe key question. Woukd your riuvals also increase prices? Prisoner's dilemma.

Andrew S. Mooney said...

"Nope as to adding to the bottom line. I would be surprised if it's a tenner per car. Don't forget that factory gate prices are ~50% of retail."

I see, chuntering down to the mat. Trouble is, upon this scale, that you're clearly not listening. Those last tenners constitute money, as from the very start, I wanted to point out.

As in: The public are not able to benefit from lower prices. Period.

Statements like "Factory gate prices" for the car industry are a joke. They are meaningless, in that you literally cannot buy a car direct from a car manufacturer. Legally, you literally cannot turn up at a car plant and ask to buy an example of their output, you have to go through a dealer, who charges his markup. No further, please, in respect to prices for ordinary consumers from this angle. Cobblers.

"As to the location of the owners meme, that the standard fallacy. The wealth is created here and the wages are paid here. Industry is international, and that benefits everyone."

OK : Thing is, since all of the money winds up overseas, are you literally arguing that this does not matter from a perspective of national wealth? That the majority of profits from building something that foreign money has financed and supervised ultimately wind up overseas? That is a philosophy of consolation for a nation of serfs.

The Stigler said...

The "foreign car makers" thing is largely irrelevant.

For the sake of argument, let's assume that all the car makers are foreign. If China knocks £120 off the raw steel price, that allows one or other car maker to drop their price and by £120 to get an edge. Or to maybe put a better stereo in the car to make their offering better. Then some bloke in Britain buys it.

Lola said...

ASM. Still, nope. The point is that the reduction in the steel price has a very marginal effect on the final selling price of a car. In any event any reduction in price will absolutely eventually benefit the car buyer as the reductions work through and price competition between manufacturers. It's not possible for consumers not to eventually benefit from the cost savings in the supply chain.

Factory gate prices are in no way a 'joke'. The point is if the FG price is only 50%~ of the retail price the marginal effect of the reduction in the price of steel is even less.

Nope, 'all' the money does not wind up overseas. It just cannot as the Damn' things are being made here. Manufactures pay far more tax on their operations - PAYE, NIC, VAT, Bus rates etc etc than they do in corporation tax. Yes, the profit will be attributable to the HQ, but as the UK might have a more tax friendly jurisdiction than the country of origin of the owner he may choose to be taxed here. In any event the profit from making cars is woefully small considering the turnover and huge amounts go back in RD - a lot of which is carried out in the UK. I gave you a link to one such outfit.

I am uninterested in 'national' wealth, in the sense you mean. I am very interested in wealth creation as that benefits everyone. That is free trade works. Better that we have an pen economy so we can all get rich.

If I may be blunt I don't think that you have thought all this through.

Mark Wadsworth said...

ASM and L. On the facts, the UK has been a net exporter ofotor vehicles for the past few years!

Lola said...

MW. Yep. But ASM seems to be saying that as the owners - Honda, Nissan, etc. - are not UK 'all the money' ends up elsewhere. Which it clearly doesn't.

The second argument is that consumers aren't benefiting from price cuts in steel. I say that that is not surprising and give reasons why and also say that will, eventually. ASM disagrees.

DBC Reed said...

Not all consumers will benefit from cheap steel imports: a lot of them will be out of work. More will be out of work when the Chinese use their own cheap steel to manufacture goods to export to us.So much for the Northern Powerhouse and his lets cosy up to the Communists (but not the Russians).

Lola said...

DBCR. Oh really. What!
Sentence 1. If someone is out of work, and by definition 'on benefits' and priced fall because steel is cheap of course they'll benefit.
Sentence 2. Eh? I take it you didn't read Timmies post? The Chinese are subsidising us.
Sentence 3. Yes. Cam/Os 'economic' and global policy is pretty well bollocks.

Lola said...

The other thing the Sky article tells you is that the whole China Growth Central Planning Buying Work Let's Stay Commie but Have Some Freedom thing is doomed to fail. After a quick search I found a chart here http://www.tradingeconomics.com/china/foreign-exchange-reserves that shows a rapid decline in foreign exchange reserves from October 2014.

That would seem to support Timmy.

Lola said...

Another goodie here http://blogs.ft.com/gavyndavies/2015/09/21/the-drain-on-chinas-foreign-exchange-reserves/

Mark Wadsworth said...

L, excellent find! They've burned through nearly one-tenth of their USD reserves in a single year.

Lola said...

MW Yep. So, ten out of ten for Timmy.

DBC Reed said...

Sentence I. If someone is on benefits , they ,by definition, don't have the income they had at work (at the steel mill);
Sentence 2.The Chinese are also subsidising their own exporters. I do not need to read Worstall.He is not a trained economist and is no more an authority than you or I.As such his usual saloon-bar argument that wages are a cost to business is barking bollocks because your own and other employers' wages supply you with income from spending .
Sentence 3 Agreed but the whole Worstall idea of globalisation that we can rely on cheap Asian labour so don't have to pay proper wages is various things but it is not industrial capitalism, which has to be made to work in this country now that Thicky Thatcher and other enemies of the State,any state, haves destroyed the old Britain founded on a mixed economy.

Lola said...



The point I was making was that a decline in prices is a decline in prices. it matters not whether you are on benefits or in work - you will, by definition (and assuming your wages and benefits don't go down) will be better off. And that better off-ness in this instance will be courtesy of the Chinese exhausting their reserves in subsidising their production.

The Chinese have been subsidising exports for years. they used to pay rag trade exporters a 15% bonus by value of their exports which a mate of mine translated into cheaper prices for his UK and rest of the world customers. Sooner or later the Chinese are going to run out of money. End of.

Last sentence. You really must keep up at the back there - that is not what Timmy is saying at all. The rest of that last sentence is just an ill informed lefty rant. But that's fine. In fact it's a Very Good Thing, as we don't get much actual debate about all this anywhere else.

DBC Reed said...

So British steelworkers will not be worse off by losing good regular wages, they will be recompensed by infinitesimal savings on their consumption of steel.
This is rather like the scene in Arthur Kopit's "Indians",(back in the day when we used to have a mixed economy that supported the Arts) where the Indians are robbed of all the land they hunted over and are given trade goods and trinkets in return.

Lola said...

@DBCR Nope. You are doing sophistry, or something. I have never said that ex steel workers will be better off on benefits. What I said was that the subsidy paid by the Chinese will make prices lower at the expense of the Chinese which mean that we can enjoy lower prices at the expense of the Chinese.

What you are saying is that this subsidy thingy means that jobs will go in UK steel production. Yep. Possibly. But does that matter? (It clearly matters to the people who's jobs are redundant). But in the great scheme of things, and considering that we are blessed with cognition and an opposable thumb, not much.

In any event in this particular case there are other forces at work. The UK steel industry was based on steel from ore. Not only has that been out competed by Chinese steel from ore but it has also been out-competed by steel from scrap.

It's nothing at all like AK's Indians'. And giving trinkets for land is no problem. The sellers valued the trinkets more than the land. That's a trade. It's not robbery.

I am very glad indeed that the UK state is withdrawing from Arts subsidy. I can see no reason at all why this is necessary. None. Or even a Good Thing.

DBC Reed said...

The Indians didn't believe they could sell land any more than they could sell air, so they thought the trade was some kind of surreal jest.In view of all the trouble buying and selling land has caused, their instinct was probably correct.
In the "great scheme of things", most of our industrial jobs will be exported to low wage areas. A small town like Northampton has lost British Timken and Avon Cosmetics jobs to Poland. Where's the Invisible Hand in all this? Right:not to be seen.(I actually cannot think of any other industrial jobs in the town)
As for Arts subsidies: either you want to see good films and theatre or you want Strictly and Britain's got talent and nothing else.Its just a matter of making your mind up.

Shiney said...


Arts subsidies... really?

Point of order... Strictly IS subsidised 'cos its made by the Beeb.

If you want something other than Strictly and BGT they pay the F'ing market price for your opera tickets.

DBC Reed said...

Your final sentence is illogical.I don't want Strictly and BGT but I would like more Shakespeare which does not figure in your arbitrary choice.BTW I wouldn't call for a subsidy on opera because I find the whole art form ridiculous while it brings arts subsidies in general into disrepute.

Lola said...

DBCR you've shot yourself in the foot with that last comment. What makes you the arbiter of who gets subsidies?

Lola said...

@ DBCR Re the indians - maybe, maybe not. The buying and selling of land hasn't really caused any problems - it's the 'rent' that has caused the problems.

The low wage / low skill jobs moving to Poland is precisely the invisible hand.

Arts subsidies? No. V bad idea. Scrap them all.

DBC Reed said...

The Worstall type argument is that his idol Adam Smith's Invisible Hand somehow converts exporting industrial jobs to low wage areas into benefits for the UK including people made redundant.There are no benefits from exporting British Timken and Avon Cosmetics jobs to Poland so there is no beneficent Invisible Hand.Smith did not say that destruction of economic activity in an area was an example of his Invisible Hand.
So driving Indians off the prairies by massacres and then ploughing the land for the first time and creating a dust bowl, only kept at bay by pumping water from that aquifer (Algaloola?)was not a problem for the Indians.? They would only have been in trouble if the new landowners had demanded rent.Right!
Subsidies are just a way of paying for things.We do not complain about subsidising the motorway system (which I rarely use) even it is the scene of road-racing as in circuits of the M25.(And I can't stick opera as I can't stick road hogs.Opera weirdos and road hogs both give public spending a bad name)

Lola said...

@DBCR Ah, I see your problem. You are being nationalistic. I am not. I am being international. The greatest good to the greatest number arises when trade is free. The comparative advantages between Poles and Brits is that poles make roller and ball bearings more efficiently than Brits, and we do other things more efficiently - games software say.

Now you are moving the goal post regarding Indian massacres, which has sod all to do with peaceful trade and comparative advantage.

Oh but I do complain about subsiding the Motorway system (which actually we don't subsidise since taxes on motor vehicles far exceed the money spent on roads generally).

DBC Reed said...

@L I don't have a problem, thank you.
You cannot expect a government of any persuasion to fulfil a mandate of exporting jobs to poorer parts of the world. Neither is this the greatest good of the greatest number: the number of jobs remains the same, just relocated to the profit of capitalist scumbags who have the hypocrisy to lecture the consequently unemployed about how good inside they must feel to have their jobs forcibly transferred .

I did not understand that the loss of the Indians' ancestral lands had been done on the basis of fair trade and comparative advantage. I just relied on the historical evidence that the Indians had been forcibly removed to reservations ,if they were lucky, and then removed from them when gold was found.Silly me! Exporting jobs and genocidal treatment of Indians are all evidence of the Invisible Hand directed by a natural wisdom that passeth mere human understanding.

Lola said...

Nope. Still confused.
Free trade has been proven without doubt to increase wealth better and more sustainably than any other system specially 'devised' . The alternative that you are espousing is protectionism (or a form of it) and that has been proven without any doubt to be a sure way to wealth destruction.

Para. 2. There are two separate arguments there. One the 'purchase' of land and two, the forcible occupation of land. Clearly one is perfectly fair. As to two, and the example you quote, the native Americans did not 'own' land in the sense we mean. Looking at the Indians wars from now, we would be more circumspect as to how we agreed with an indigenous but not land owning population as to how we could arrange for the land use to achieve its maximum utility. We cannot judge our ancestors. In nay event all the various native American tribes used to fight each other all the time for the control and use of various land areas. So the immigrants weren't really doing anything new. They were just better at. They had the gatling gun...

Shiney said...


Late comment....

What Lola said..... don't subsidise any of it

The point I made about Strictly was that you said, and I quote, "As for Arts subsidies: either you want to see good films and theatre or you want Strictly and Britain's got talent and nothing else" implying Strictly is not subsidised... it is, 'cos its made by the Beeb with taxes.

I like Shakespeare and some Opera and Strictly (but not BGT) and football (not premier league) and Rugby (union not league). But I should have to pay the market price for what I like.... I don't want any of them subsidised.

And just so you know - my son is a professional Classical Musician who also disagrees with Arts subsidies 'cos people like you are always trying to dictate what his output should be depending on THEIR tastes. He just wants to earn a living.

The Stigler said...


Good films? Nothing made by Scorsese, Kubrick, Hitchcock, Orson Welles, Coppola, William Friedkin, Spielberg, John Ford or Kurosawa was made with a subsidy, except maybe the sort of "bring your production here" subsidies that everyone can get.

Opera? There's Glyndebourne, Garsington, Grange Park and one up in Market Harborough that operate without subsidies. Iford festival near me does operas without subsidy. Most of the subsidy for say ROH doesn't even go on popular stuff like La Boheme or The Marriage of Figaro - they sell out every seat at a minimum of £60 (rising to about £200). It goes on experimental/difficult opera that costs a load of money to develop and has almost no audience.

Lola said...

TS. What about The Best Film Ever - Some Like It Hot. Can you imagine Billy Wilder (himself a refugee from the the Nazis - National Socialists you note) successfully or even wanting to appeal for a subsidy?

DBC Reed said...

To repeat: subsidies are just a way of paying for things, so they become available to everybody. These demands that people pay full market price could just as easily be applied to health, education, the armed forces, the police. You want an education system that gets kids to university? Then pay £20,000 a year ( and totally fuck them up so they appear on the website of Boarding School Survivors)!You want a fire brigade?Pay private fire insurance like the old days , and watch your house go up as fires in uninsured houses burn the whole street down as competing fire crews fight over the public fire hydrants (but of course you wouldn't have those).
Most British people do not object to taxation: it is just a payment system for the important things of life like education ,health, the road system, where you get things at cost, with tremendous economies of scale and rich bastards pay more than you do.British people only trust the market system for less important things EXCEPT housing which entrusted to market forces and the private sector is a catastrophe which ,if you follow Keiser (and he seems to follow us!)has made Britain a degenerate society poised above a financial(possibly moral) abyss.

Lola said...

DBCR. Yes, subsidies are 'just ways of paying for things'. Is that a good idea? No. It is a massive distortion. And we can see why it always becomes a massive distortion because people like you start making value judgement about what things everyone else must have access to lot of which (opera for example) I do not ever want to consume preferring to spend MY money on MY preferences which I judge as more culturally valuable and my judgement is much better than yours as to what these things are for me, and my peer group. I'll go further than that. As my preferred cultural pursuit involves both making stuff for it and participating in it competitively it rather trumps just popping off for an evening staring at a lot of people dressing up bawling away in a language I do not understand to music my tone deaf ears does not appreciate. OTH if you do think that education say is a merit good (I don't as it happens) then you might want to hand out vouchers for people to spend on education. IMHO that will also be a bad idea. If you look round the world and into history parents will always sacrifice a lot to get their children educated.

In respect of roads these are not 'subsidised'. They are paid for by taxation on road users. The governments role is a bit of co-ordination and dealing to deal with free riders.

House builders are not essentially the rogues you would have us believe. It's just that they are handed a subsidy to profit from the land monopoly - as we on here know and agree about. Since they are subsidised to profit from land, that rather illustrates my point about subsidies being a bad thing generally. In economics incentives matter and if you skew the incentives with subsidies you get people taking advantage.

The rest of what you say contains some very emotive language that rather undermines your arguments by indicating that you are basing your them on envy and prejudice.

DBC Reed said...

@L The British system, largely institutionalised after the Second World War, provides cheap or free services in return for paying as much tax as you can reasonably afford.This way people get the important things of life like education for free, though you can't see the merit in this, although the wiser generation that preceded ours saw that it was in nobody's interest, including business, to have an ignorant population, increasingly so with more technology and an incre4asingly dysfunctional society that warrants an equal study of the humanities, particularly history.(Thatcher knew no history at all and relied on popular best-sellers) Not everybody will want to avail themselves of some services and ,for instance, may not have children: but the services are freely and equally available.So refined and developed is this system that some of the rarer arts are made available: nobody is forcing people to enjoy them (and I am not forcing people to go to grand opera as you seem, weirdly, to believe-quite the contrary).
I am sorry that your form of motor racing is not considered an art form worthy of support from the taxation system,( although as you don't think educations should be so supported, serve you right ,one could say).
It is not practicable to use the tax system to fit people up with vintage racing cars when we can't fit people up with places to live or even children with enough food .I'm afraid you are stuck with brute market forces, which, since not a lot of people are fascinated with your avocation is tough luck. People who prostrate themselves to market forces are fond of saying 'tough luck., are they not? The greatest good of the greatest number and all that? Well you're in the minority.
If you are going to argue that minorities have to be protected then you have to introduce terrible, artificial DISTORTIONS in the world of natural, therefore brute, market forces which are now sacralised (as Pope Francis says.)