WLTP production delays will not impact steel market

14 August 2018

The move by some manufacturers to lower or stop production of certain vehicle models due to the new WLTP regime will not affect the steel market, according to a new report.

With the deadline for all newly registered vehicles to have passed WLTP and its Real Driving Emissions (RDE) portion looming, vehicle manufacturers are looking to ensure they are not caught out with fleets of vehicles that cannot be sold unless they are re-engineered.

The WLTP test procedure takes a longer time to carry out per model than the previous NEDC system. It must also be applied to all variants of a model, including optional extras, where the prior system allowed for testing of a single model version.

This means that WLTP testing has become a short-term bottleneck for some EU light vehicle production. Any models not tested by 1 September cannot be sold until a test is completed.

It is more financially viable for them to pause production and fit them with new technologies, such as a petrol particulate filter (PPF), to allow current models to meet the stricter emissions standards. Retrofitting any models built, but not yet registered, would be more expensive. This means some manufacturers have paused or slowed production to allow this process to take place.

Such action could impact other markets as well. However, a new report from CRU suggests that while manufacturers may halt the building of vehicles, the impact on the steel market will be small.

The group states that while there have been concerns of reduced EU steel demand in H2 2018, there could be a ′catch-up’ period after 1 September and over time, most losses could be recouped. Manufacturers would need to meet the demand for vehicles, so for a period after WLTP is introduced and cars have passed the new tests; factories could end up requiring more steel to meet targets.

Additionally, the group points out that not all manufacturers will need to pause or halt supply. In a statement, the company says: ′VW some months ago warned of the potential for production stoppages, subsequently followed up with quantification that its Wolfsburg plant would stop for 1-2 days per week in August-September.

′Consequently, steel suppliers with relatively heavy exposure to VW or Wolfsburg, in particular, may see an effect larger than other suppliers. Salzgitter is likely to be one such supplier.

′By contrast, BMW announced on 2 August that ″just a few model variants″ remain non-compliant with WLTP.’

Other manufacturers are also ahead of the WLTP process. Renault recently stated that all testing would be complete by mid-August, while Ford’s Fiesta and Focus, the company’s top models, were recently relaunched, meaning they underwent WLTP at the type approval stage last year.

CRU also points out that steel consumption itself occurs within the supply chains of the OEMs, where finished steel products are cut, stamped, formed and so forth. Production is not directly impacted at these supplier companies though there is at least an inventory implication. For example, suppliers to Wolfsburg may see an increase in goods on hand during the stoppage period unless they adjust their production schedules. Such an adjustment may be likely given the working capital requirements of increased inventory, though it could be diluted versus outages at Wolfsburg itself.