Toyota Motor began advising their suppliers of their intention to slash production in the United States. One of their steel suppliers told Steel Market Update (SMU) this afternoon schedules were being cut 50% on Tuesday, Wednesday and Thursdays at all manufacturing facilities. On top of the 50% cut is another 15-16 days of “non-production” between now and June 3, 2011. These include Monday and Friday’s as well as the last a shut-down during the week of May 30 in the United States and the week of May 23rd in Canada.

An automotive related steel service center advised SMU they were going back to their mill suppliers to see what orders could be canceled. They told us, “With this much reduction we are going back to mills and canceling orders. We have no place to put the steel.” They told us the impact was going to be in the “thousands” of tons.

A second automotive supplier who was unaffected by the Toyota moves but has been impacted by Honda and other Japanese transplant auto companies told us they too were having to look at storing more steel than planned. In their case the OEM (the auto company itself) was responsible for adjusting their orders with the domestic mills. “They may have to find someplace to store their steel” the service center told us.

“So far the mills are being cooperative” one service center executive told us. They went on to say the Toyota changes alone would have a dramatic impact on the days of inventory they will be holding on their floor.

They went on to ask, “What are they going to do next?” One service center automotive source told SMU they would have to make reductions but they did not know the answer to, “When do I go back and order again?”

A number of suppliers told SMU this could cause a similar surge as was seen during the economic crisis when the domestic automakers future was questionable and suppliers had to move off inventory on their floor. This time there could be a surge as either the OEM’s or their top service centers cancel orders only to have to reorder in earnest later this summer when Toyota and the other car companies all of a sudden have replenished the missing parts which are responsible for the current production reductions.

The expectation is this will create an even more volatile flat rolled steel environment over the next few months.

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