Processors of all types have been dealing with rising prices for many commodity and engineering resins this year. For auto suppliers like Magna International Inc., that signals the start of negotiations on who pays for the increases.
Magna CEO Don Walker recently talked to Automotive News senior writer David Sedgwick about the company's purchasing strategy, including dealing with rising resin prices.
Here are a few plastics-related highlights from the interview:
AN: We're told that suppliers generally get compensated for the rising price of copper, aluminum and steel. But we hear that plastic resin has been a headache.
Walker: “Resin is a bit of an odd one. It's hard to figure out what the cost drivers really are. Quite often, the resin suppliers don't even care about the auto industry because they have other [customers]. So they'll say, ‘We'll give you this price if the economy is up, or that price if the economy is down. And if you don't like it, don't buy it.' “
AN: Are your customers compensating you for the rising cost of plastic resin?
Walker: “Typically it takes a bit of time, and you have to have a lot of discussions. If [resin costs] go up 25 percent, the car companies will expect us to do something to mitigate it. It's never a straight pass-through. Hopefully it's an intelligent and relatively fair negotiation. [Customers] who are not fair will pay the price later.”
AN: Are automakers getting more realistic about raw material costs?
Walker: “I would say they are reasonable. But we still usually have a delay of three to six months. There are a lot of discussions going on right now.”
This exchange prompted some discussion, both at Plastics News and with our readers.
One automotive Tier 2-3 molder said he has been working with all of the firm's Tier 1 customers to handle material price fluctuations. “They have been much more cooperative than in the past and we have agreements in place with all of our major customers to pass along material price fluctuations greater than 5 percent,” he said.
Wait a minute — cooperation among suppliers and customers in the auto sector? Now that seems like a man-bites-dog story. It must be the result of a healthy market. If there's a downturn, I expect we'll see a return to cutthroat tactics, but it would be nice to be wrong.
Still, this story reminds us of what's different about plastics vs. other commodity materials like steel and aluminum.
First, resin purchasing tends to be complicated because each automaker has its own requirements for gloss or reaction to extreme temperatures, leading some suppliers to tweak a blend specifically for one or two carmakers, rather than saying: “Here's the standard, and it's good for everyone.” This complicates bulk purchasing.
Finally, unlike metals — which, it bears repeating, plastics compete with for automotive applications — plastics has no reliable third-party pricing source that establishes pricing of the materials.
Yes, there are services that track plastics pricing — including Plastics News. But that's different from commodities that have markets that actively trade spot and derivative contracts, where there is transparency on all sides.
So in plastics, if the suppliers say prices are going up, automotive customers have to take them at their word.