Japan Steels in Tough Price Talk with Automakers

Japanese integrated steel makers have tough time in price negotiation with automakers, which are largest sheet users for the steels. The steels try to increase the selling price for the most influential users. However, automakers resist the price hike attempt for 4 years in a row though automakers just understand the situation of higher cost for raw materials. The steels and automakers have trouble to find point of compromise. The steels realized around 10,000 yen per tonne of hike for automakers in fiscal 2005 ended March 2006 when annual purchase contract price increased to 1.7 times for iron ore and to 2.2 times for coking coal. The steels are suffered from higher raw materials cost when the iron ore price increased by 19% along with surging zing price in fiscal 2006 though the coking coal price decreased by 8%. The steels started official price hike talk with automakers in September to cover higher cost. Steels seek 3,000-5,000 yen per tonne of hike for automakers, according to sources. However, chairman Fujio Cho of Japan Automobile Manufacturers Association, who is chairman of Toyota Motor, said at monthly press conference in August steel price hike impacts largely on automakers and the higher cost price is more than cost cutting effort by automakers. The remark of top of industrial association warns against steel makers. A source of integrated steel maker said after the Mr. Cho’s remark, automakers changed the stance to rejection for the hike. The steel makers’ weak point is stable supply issue. Japanese automakers increased the output to around 7.5 million units in January-August, which was around 400,000 units higher than same period of 2005. The output is expected to reach 12 million units. With the higher auto output, the steels try to expand continuous galvanizing lines. However, the most of the new capacities start commercial operations after 2007. The automotive flat steel supply is expected to be very tight in second half of fiscal 2006 and some expects the shortage. A source of integrated steel maker said automakers accept the steel price hike under major premise of stable supply and if steels couldn’t commit stable supply, automakers wouldn’t accept higher steel price. However, the steels are suffered from higher raw materials cost and some sources of steels said past hikes couldn’t cover the higher cost before fiscal 2005. The steels could focus on higher cost of surging zinc while they give up base price hike.