ID :
125390
Tue, 06/01/2010 - 14:19
Auther :

Tokyo Report: Raw Materials Price Hikes May Dampen Recovery

Tokyo, May 31 (Jiji Press)--Steep rises in the prices of iron ore
and other raw materials for use in steel production are starting to loom
over a Japanese economy now on a gradual recovery trend.
Nippon Steel Corp. <5401> and other major Japanese steelmakers
reluctantly accepted sharp rises in the prices of raw materials during
pricing negotiations in March with overseas suppliers for the April-June
quarter.
Coking coal prices, for example, were set 55 pct higher than those
for fiscal 2009, while the prices of iron ore may jump as much as 90 pct.
Prices of raw materials for steel production have continued rising
sharply due to the persistent growth of demand for steel products in
emerging economies such as China and India.
But an increase in demand alone does not cause prices to almost
double on a year-on-year basis.
The dominance of supplies by a few mining companies is another key
contributor to the latest price hikes.
In 2008, British-Australian mining giant BHP Billiton supplied
about half of the high-quality coking coal of Japanese steelmakers, while
British-Australian resources titan Rio Tinto, diversified Brazilian mining
firm Vale SA and BHP accounted for nearly 90 pct of the iron ore used in
Japan.
Meanwhile, the global presence of Japanese steelmakers has
continued to decline sharply. Japan accounted for 7 pct of world crude steel
production in 2009, down by half from 2000, while China captured a share of
47 pct.
Against this backdrop, Japanese steelmakers had to accept sharply
higher raw materials prices, fearing that they would be unable to secure
supplies if negotiations dragged on.
"We are worried about the price inflation for raw materials amid
deflation for products," Nippon Steel President Shoji Muneoka said at a
press conference in late April, speaking as chairman of the Japan Iron and
Steel Federation.
Under their contracts with mining companies for the April-June
period, steelmakers saw their raw materials procurement costs increase by
more than one trillion yen on an annualized basis.
The steel industry thus asked for negotiations with automakers,
home appliance producers and other major users, hoping to get the nod for a
hike of around 20 pct in steel product prices. Muneoka said steelmakers had
no other choice but to ask customers to accept "broad and shallow" price
hikes.
But they have faced an uphill battle. At a time when personal
consumption in Japan is starting to pick up at long last, thanks mainly to
stimulus measures adopted by the government following the so-called Lehman
shock of 2008, Toyota Motor Corp. <7203> said it cannot pass on rises in
steel prices to automobile prices in full.
Aware of steelmakers' difficulties, added to by moves by mining
companies to set prices on a quarterly basis rather than for each business
year, Toyota plans to accept a certain rise in steel prices, but it is
urging steelmakers to curb the hikes.
Automakers and other steel users may eventually raise their product
prices if they accept steel price hikes that they cannot cover by
cost-cutting efforts.


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