Toyota to agree steel price hike

June 16, 2010
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, TOKYO, Jun 16 – Toyota Motor has agreed to a large hike in the price it pays for steel in a deal that could lead to a substantial increase in purchasing costs for Japanese companies, a report said Wednesday.

Under the agreement, Toyota will pay an additional 20,000 yen (220 US dollars) a metric ton to buy from Nippon Steel in the April-September period compared with fiscal 2009, the Nikkei business newspaper said.

The hike, the first in two years, will return steel prices to record highs reached in fiscal 2008, the Nikkei said.

Toyota spokesman Paul Nolasco told AFP the automaker "does not want to comment on the details of the negotiations".

But he added that "the cost of raw materials was a parameter of total production costs" and that any increase in steel prices was not automatically passed on to the consumer.

The carmaker\’s purchasing expenses will go up by nearly 20,000 yen per vehicle, the report said.

The Nikkei said the agreement between Japan\’s largest steelmaker and carmaker will serve as a benchmark for negotiations between the nation\’s other steel suppliers and large customers, including consumer electronics makers.

If the price of all steel products rises by the same amount for the full year, the Nikkei estimated that buyers will see a 1.2 trillion yen rise in procurement costs.

The price hikes are expected to allow steelmakers to pass more than 80 percent of the increase in their raw materials costs to automakers and other customers.

Rising costs of raw materials used in manufacturing, especially iron ore and coking coal, are being driven by rampant demand from emerging giants such as India and China.

Japanese steelmakers and automakers had negotiated steel prices on a yearly basis for more than 20 years, but global resource giants are demanding quarterly price talks with steelmakers starting this fiscal year.

This has resulted in shorter-term contracts with their buyers.

Nippon Steel had demanded a hike of more than 20,000 yen per ton, but Toyota sought a smaller rise. The two sides compromised at between 19,500 and 20,000 yen, the Nikkei said, quoting company sources.

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