Japan's Nippon Steel Corp and other major steel makers will start price talks with auto makers and shipbuilders this week, seeking price hikes of up to 10 percent to offset high raw materials costs, the Nihon Keizai business daily reported on Tuesday.
Nippon Steel, Japan's biggest steel maker, and second-ranked JFE Holdings Inc declined to comment on the report. Shares in Nippon Steel, the world's third-biggest steel maker, inched up 0.7 percent to 452 yen in early afternoon trade in the bearish market, while JFE Holdings dipped 0.8 percent.
The iron and steel sub-index fell 0.59 percent and the benchmark Nikkei dropped 0.94 percent. "Automakers wouldn't be easily persuaded to give a large price hike this year, but it's a positive factor for steel makers if they could pass on some of higher raw materials costs to users," said Norihiro Fujito, a strategist at Mitsubishi UFJ Securities.
If the steel makers win the price hikes, it would be the fourth year in a row of price increases. But analysts have said smaller rises in basic material costs this year than last year would weaken steelmakers' bargaining power in price negotiations with major clients such as Toyota Motor Corp.
Japan's steel trade group said in May that higher prices for iron ore, zinc and other metals would cost Japan's steel industry 300 billion yen ($2.6 billion) in the business year to March 2007.
The skyrocketing price of zinc alone could cost the industry about 80 billion yen, Hajime Bada, president and chief executive of JFE Steel Corp and new head of the Japan Iron and Steel Federation, said. Zinc is used as an anti-corrosive coating in galvanised steel.
That would be sharply lower, however, than the 1 trillion yen cost increase the industry experienced in the previous year, when iron ore price surged 72 percent and coking coal prices more than doubled.
The world's steelmakers and raw materials producers earlier this year agreed to a 19 percent rise in iron ore prices and an 8 percent cut in coking coal prices for the current business year.
Japanese steel makers are still keen to raise prices due to a wide gap between domestic and international prices. An aggressive push in the late 1990s by Nissan Motor Co Chief Executive Carlos Ghosn to cut prices from suppliers helped sharply lower the price of high-grade automotive sheet steel in Japan.
Analysts estimate that contract prices of shipbuilding plate and high-end thin sheet steel used in cars in Japan are still more than 10 percent below comparable international levels, and are even lower than the prices of commodity-grade steel sold by Asian rivals.
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