Japan Steel Makers to Face Complicated Price Talks with Users after Earthquake

Japanese steel makers would face complicated and difficult price negotiations with large-lot steel users such as automakers and electric appliance makers for the first half of fiscal 2011 (April-September 2011). Supply and demand balance of steel products is confused after Tohoku-Kanto Earthquake. Automobile, electric appliance and machine makers are unable to design output and sales plans. On the other hand, steel makers’ raw material cost is likely to rise by about 25% to US$ 171 per tonne for iron ore of April-June shipment and by 47% to US$ 330 per tonne for coking coal compared with the previous quarter. Many steel makers’ quarterly profits have already turned into red for January-March. Steel users have gradually comprehended raw material cost upsurge situation but price negotiations would become difficult with unusual factors such as imbalanced supply and demand or electric power shortage.

Japan Automobile Manufactures Association abandoned announcement of domestic car demand forecast in fiscal 2011 (April 2011-March 2012) scheduled on March 17th. Toyota Motor partially restarted production of hybrid vehicles this week. Mitsubishi Motor maintains car production with component inventories. Meanwhile, Honda Motor continues stoppage of four-wheel car production until the end of this week. Component makers have progressed restoration in North Japan but it would require substantial time to recommence full operation. Moreover, automobile and electric appliance makers are said to examine operative rotations along TEPCO’s planned power outage.

Integrated steel makers are also under unstable operations. They produce steel products for infrastructure restoration preferentially while steel demand sharply decreased from manufacturing industry. Steel inventory is increasing for downstream products such as surface treated steel sheet. On the other hand, domestic zinc supply is shortening.

Mr. Eiji Hayashida, JFE Steel’s president, commented at a press conference on Tuesday JFE Steel would offer price hike against steel users to reflect raw material cost upsurge in and after April. Meanwhile, Mr. Hayashida said, the firm considers each consumer’s situations after Tohoku-Kanto Earthquake.

He explained JFE Steel is utilizing private electric power facilities and decreasing outputs for daytime operations to reduce power purchase from TEPCO. JFE Steel sends surplus electric power to TEPCO. In usual situations, JFE Steel doesn’t need to purchase electric power from TEPCO for daytime operations but JFE Steel’s private power facilities were partially damaged by the earthquake. Thus the firm is adjusting operations such as suspension of hot rolling lines.