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Japan’s biggest steel company warns of further price hikes for car and appliance makers

Japan’s biggest steelmaker has warned it will raise prices, which will deal a blow to automakers and engineering industries already struggling with soaring costs.

Nippon Steel will have to pass on steep cost increases for inputs like iron ore and coking coal “quickly and fairly”, Takahiro Mori, executive vice president of Japan’s largest steelmaker, said in an interview this week.

“Otherwise, our profits will be reduced.”

Nippon Steel and the steel unit of its domestic counterpart JFE Holdings have already hiked prices by half to record highs over the past year as raw material costs rise.

A global commodity boom has also enabled domestic steelmakers to secure better terms on contract prices agreed with customers. This is particularly the case for automakers, which have generally had more bargaining power.

Japanese manufacturers are already feeling the pain of soaring prices for steel and other materials in a country that imports everything from iron ore to crude oil.

Automaker Toyota Motor, one of Nippon’s biggest customers, warned that “unprecedented” increases in raw material costs would weigh on its profits. It forecasts a decline in operating profit for the current year.

Mitsubishi Heavy Industries, Sony Group and Hitachi are also among Nippon’s main customers.

Mr Mori said it was not unreasonable to charge higher prices to domestic manufacturing customers, many of whom ship their products out of Japan and profit from the sharp decline in the yen.

While the weaker currency makes importing raw materials more expensive, it makes products made in Japan competitive in overseas markets.

For Nippon Steel, the biggest challenge will be getting more raises from customers in the construction industry, as they only consume the material domestically, he said.

“The biggest concern is the national construction sector,” Mori said. Still, Nippon Steel cannot afford the full cost, “so all we need is to gain understanding from these customers through discussions.”

In another signal that the metal is getting more expensive, Mori said Nippon Steel would separately enter into discussions with customers to seek better terms for its value-added products, such as low-carbon steel, in as part of a global transition to net zero emissions.

Nippon Steel’s push for further increases comes despite recent downturns in Asian steel markets. Steel prices in China fell as the national Covid Zero strategy undermined demand and weighed heavily on the economy.

The benchmark hot-rolled coil futures price in China fell to 4,632 yuan a ton ($688) on Thursday, near the lowest price in more than four months. This is at a level where, according to Mr. Mori, Asian steelmakers cannot make a profit.

Still, demand and prices have bottomed out and Asian markets will likely see a recovery in a few months, buoyed by measures taken by China to support the economy, he said.

China has launched a series of measures to support growth, including lower borrowing rates for some home buyers and a 140 billion yuan program to support businesses.

Nippon Steel expects prices for iron ore and coal, the two main inputs for steel production, to remain at elevated levels.

The steelmaker’s costs are expected to rise by more than 40,000 yen ($314) a ton by the end of September. That compares with the quarter that ended in March, when prices for raw materials, fuels and distribution soared, according to a company estimate.

Updated: May 27, 2022, 03:30

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