Nippon Steel to Cut Steel Prices

Nippon Steel has led Japanese steelmakers to an agreement with Toyota Motor to cut steel prices by around 10%, a source said. This smaller-than-expected cut indicates that steel mills' earnings may not suffer too much.
However, Toyota, facing a global auto sector slump, may seek a further price cut later this year after steel mills and miners such as BHP Billiton set the price of iron ore, a key raw material, analysts said.
"The size of the price reduction is far smaller than expected," Mizuho Securities analyst Hiroshi Matsuda said. "It is hard to understand why Toyota would agree to this price."
Shares in both Nippon Steel and JFE Holdings jumped by nearly 9% after reports of the first price cut in auto sheet in seven years.
That helped the iron and steel sector sub-index gain 6.6%, leading the Tokyo share market higher as the benchmark Nikkei share average rose 1.2%.
Toyota shares rose 2.7%, in line with other exporters, aided by a surge on Wall Street.
Amid slumping demand for cars, electronics and industrial machines, Asian steel prices have more than halved to less than $500 a ton from record highs early last year.
Worries that Japanese mills faced sharp cuts in prices for auto sheet steel have weighed on their shares.
Toyota informed one of its affiliated parts makers on Thursday to cut its assumed steel product price by 15,000 yen ($151) a ton from June from an estimated 100,000 yen, a source with direct knowledge of the matter told Reuters.
He declined to be identified because of the sensitive nature of price negotiations.
The Asahi Shimbun daily reported that steelmakers would slash prices for other automakers, shipbuilders and electronics companies too.
Nippon Steel declined to comment while Toyota spokesman Keisuke Kirimoto said: "We will work to reduce costs of not only steel but other raw material in accordance with their market situation."
Yuji Matsumoto, analyst at Nomura Securities, said Nippon Steel's operating profit would exceed his forecast by more than 100bn yen if the price cut was held at 10% but he also saw risks of another price cut.
Media have reported that the price of auto sheet could fall in stages, allowing steelmakers to cope with two-to-three months of supply of costly coal carried over from last year.
A sharp drop in global sales and high material costs have pushed Toyota to forecast a 450bn yen operating loss in the year to 31 March, the first such loss in its history. Nippon Steel last month sealed a price cut of around 57% on coking coal contracts with BHP Billiton Mitsubishi Alliance (BMA), compared with what it was paying a year earlier.