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Cars and Metal, Metal and Cars

Sure you've got your leather seats, the plastic cup holders, the rubber tires and windows made of safety glass. But most of what makes the car move and protects you as you hurtle down the highway is metal.Steel is the most common material in an auto. Approximately 55% of a car's weight comes from steel, according to The World Steel Association.

In 2007, the average car contained 2,400 pounds of steel, and the average light truck or SUV 3,000 pounds of the metal. GM alone buys 7 million tons of steel for itself and for resale to its suppliers each year.Not to be outdone, the Aluminum Association touts aluminum as the second-most-common metal in cars - with 327 pounds used in an average vehicle in North America. In 2007, the average weight of a new car in the U.S.

weighed 4,144 pounds, which puts only around 8% of a car's weight attributable to aluminum. Still, 327 pounds times the millions of cars sold just in the U.S. every year makes a nice market.The London Metal Exchange attributes 7% of copper consumption to the transportation industry, but exactly how much of the metal in your car is hard to know.We do know that platinum, palladium and rhodium are used extensively in catalytic converters.

In fact, 60% of platinum is used in the auto industry, even though the amount in each car is fairly small - around 1 to 1.5 grams - and may be getting smaller, as various auto companies announce new catalysts that reduce the amount of the precious metals used in their processes.(Nissan recently announced a process to cut platinum use in its new Cube car from 1.3 grams to 0.65 grams. Analysts don't believe it will have a large impact in the short term because the car will only be available in Japan. Besides, these announcements don't always result in a process that gets put immediately into production.

Mazda announced a similar catalyst last October that was supposedly able to reduce precious metal use by 70-90%. But so far, there's no sign it's in wide use yet.)But wait, there's more. Lead is used in batteries.

Tin is used in solders, and zinc plays a role in galvanizing metals, which helps protect your car from the elements. Cobalt is used in airbags and as an additive in a variety of different things that can make its way into or onto your car. If you drive a hybrid, you've got cobalt in your batteries - as much as 2.5 kg if you own a Prius.The October figures for U.S.

auto sales were dismal - down 32% from October 2007. Of the Big Three automakers, GM was the hardest hit, seeing its sales drop 45%. Ford and Chrysler weren't spared either, with sales dropping 30% and 35%, respectively.It's not just bad here, it's bad all over.

Iceland had a drop of a whopping 86% and Ireland plunged 55%. OK, Iceland isn't a driving force in automotive demand, but you just can't ignore numbers like that.J.D. Power and Associates forecasts that the total number of new light-vehicle sales in the U.S.

will drop to 13.6 million units in 2008, and then to 13.2 million units in 2009. Europe is also expecting a decline of 3.1% for 2008. China's auto market is still growing, but, like the rest of China's economy, that growth is slowing.

J.D. Power estimates 8.9 million units will be sold in 2008 - a fairly respectable 9.7% growth over 2007's numbers. Respectable until you compare it with 2007's growth rate of 24.1%.And with consumer confidence continuing to crash, and the future of companies like GM in doubt, it doesn't look like car sales will rebound anytime soon.Put 2 And 2 TogetherThe question for commodity investors, then, is just how leveraged different commodity prices are to automobile demand.

If car makers produce 10% or 20% fewer cars next year, which markets will hurt the worst?At the top of the list - aluminum. In 2005, a full third of aluminum consumption in North America was attributed to the transportation sector - that's 8,683 million pounds of aluminum.

Containers and packaging consumed another 20% of aluminum, and 14% of aluminum went into building and construction. A 10-20% reduction of demand that affects a full third of aluminum's market is a big hit to the metal.Platinum is another metal that could be severely hit by a drop in demand due to lower car sales as well as the added threat of newer technologies that can reduce the amount of the metal needed in each car. If prices get low enough, we may see an increase in jewelry sales - the only other large demand driver of platinum.

But in times of economic slowdown, we probably won't be seeing a big jump in demand for bling.How about steel? As a major component of all of the vehicles on the road, you'd think that steel is at risk - but maybe not. The truth is, while it's an important industry, autos represent just a small fraction of the market for steel.

White goods, bridges, dams, buildings and a myriad of other industries use steel. In 2007, 1,343.5 million metric tons of steel were produced in the world, according to the International Iron and Steel Institute. That makes GM's 7 million ton annual purchase look like a mere drop in the bucket.The silver lining?

Low metal prices could mean big savings for car manufacturers if their current materials contracts are up for negotiation. There is some evidence that car makers in India may be starting to see their margins improve as they begin to be able to take advantage of lower input costs. One minor problem - they still need to actually sell cars in order to make money, but hey, one problem at a time, please.Recent Metal PricesLME Mediterranean Steel ContractsLME Far East Steel ContractsLME Copper Grade ALME Standard LeadPlatinum Falls as Equity Decline Renews Growth, Demand Concerns Bloomberg, Nov.

11, 2008Auto makers may see profits improve as metal prices decline New Delhi

About Cars and Metal, Metal and Cars

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