Tokyo: Toyota Motor Corp has agreed to pay Nippon Steel Corp and other top Japanese steelmakers over 30 per cent more for sheet steel, the Asahi Shimbun daily reported, triggering a rally in steel stocks.
Such a price hike, which is in line with brokerages' estimates, would boost the prospects that Nippon Steel, the world's second-biggest steelmaker, will raise its earnings outlook for the current business year.
Japanese steelmakers have been hit by soaring costs of raw materials, with Nippon Steel forecasting a 34 percent drop in pretax profit for the year ending in March 2009.
The Asahi reported on Thursday that Toyota has agreed to a price increase of more than 25,000 yen ($238) per tonne for sheet steel this business year, allowing steelmakers to pass on most of the recent cost increases. Nippon Steel and Toyota both declined to comment on the report.
Nippon Steel, a top supplier of Toyota Motor, has said recent spikes in iron ore, coal, freight and other prices would cost the steelmaker 1 trillion yen ($9.52 billion) more this business year, equating to a 38 percent cost increase, or 30,000 yen per tonne.
Despite analysts' bullish forecasts for steelmakers, investors have remained sceptical about the firms' chances of raising prices at a time when Toyota faces its first annual profit decline in seven years because of a stronger yen and a slowing US economy.
"Initially, it was expected that the price hike would be one-third or half at most (of what steelmakers had sought), but it now seems they would get at least two-thirds of what they had asked," said Fujio Ando, senior managing director at Chibagin Asset Management.
Shares in Nippon Steel rose 6 per cent and JFE Holdings Inc, the world's third-biggest steelmaker, climbed 4.8 percent by midday Tokyo. Sumitomo Metal Industries Ltd was up 6.3 per cent.
The steel sector subindex rose 4.8 percent, the biggest percentage gainer among the industry subindexes. Nippon Steel sells its steel at an average of 80,000 yen per tonnes at present, substantially lower than those of foreign rivals.
A spokeswoman at Nissan Motor Co confirmed comments made by Chief Executive Carlos Ghosn to several local newspapers that a partial shift of such price hikes to consumers would be inevitable under current conditions.
Ghosn said, however, that Nissan, Japan's No. 3 automaker, would not raise product prices ahead of industry leaders such as Toyota, according to the spokeswoman. Analysts said that an over 25,000 yen price increase for sheet steel was in line with their forecasts.
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