Japan Steel Price to Stay High in Jan-Mar Despite of Material Cost Down

Japanese integrated steel makers are likely to close quarterly coking coal price negotiations for January-March in price down by 17-18% compared with the level in October-December. Iron ore purchasing price will decrease by 13-14% in January-March from the previous quarter. However, both coking coal and iron ore prices are still higher than a year earlier level. In addition, Japanese integrated steels are currently reducing output volumes and then consumption of newly purchased raw materials will be limited. Steel prices would only slightly decrease for January-March.

Japanese integrated steels are closing hard coking coal price negotiations for January-March this week. Major steel makers in Europe and Asia have already agreed in 17-18% price down compared with the level in October-December. Japanese steel makers are also expected to agree in the same range price down with Teck Coal of Canada and Anglo American of UK. The quarterly price will decrease to around FOB US$ 235 or approximately 18,300 yen per tonne from current US$ 285.

Iron ore quarterly price is estimated to become FOB US$ 144 per tonne for Australian powder ore in January-March from US$ 167 in October-December based on the averaged spot price in September-November.

By year-on-year comparison, iron ore price will represent 5% higher than the level in January-March and hard coking coal price will represent 4% higher price. Iron ore price will become lower than the peak in fiscal 2010 ended March 2011 at US$ 147 in July-September 2010. Meanwhile, hard coking coal price will stay higher than the peak of US$ 225 in July-September 2010 and January-March 2011 in fiscal 2010.

Japanese integrated steels have reduced outputs when domestic demand slowed down due to the Japan Earthquake, impact on the export by historical high yen rate, and impact by flood disaster in Thailand. The raw material consumption has not progressed as expected and then the integrated steels will continue consumption of previously purchased high-cost materials for a while. Steel price would not immediately decrease despite of raw material price down. Another background is that the integrated steels have failed to reflect raw material cost increase fully on steel selling prices so far.