September 06, 2008

New fuel standards may hurt steelmakers

It is reported that the energy bill that Mr Bush President of America signed recently mandating tougher fuel economy standards sent a simple message to automakers lighten up thus putting steel makers at risk. The new law says the auto industry must raise its fleet wide fuel economy average 40% in the US, to 35 miles per gallon, by 2020. Increased mileage requirements could begin as early as 2011.

The new rules certainly give makers of aluminum, carbon fiber and other lightweight materials something to smile about, though the steel industry's piece of the auto industry pie is likely to shrink. Auto shoppers, meanwhile, can expect to pay a premium at dealerships when the new rules kick in but the impact will be mitigated somewhat by fuel savings.

Today, steel accounts for about 60% of an average vehicle's weight in the US, down from a generation ago when much more of the metal was used. Still, the popularity of trucks, minivans and SUVs has caused the average vehicle weight to rise by more than 25%, to about 4,100 pounds, over the past 20 years, helping steel providers. Even so, the percentage of aluminum in cars has been on the rise for decades since the last boost in fuel economy standards.

A 10% drop in weight yields roughly a 6 percent improvement in fuel economy.