It is reported that major steelmakers are set to raise steel prices significantly from April 2011 due to soaring raw materials costs, a move that is expected to intensify the tug of war with automakers and other manufacturers.
Mr Kozo Uchida EVP of Nippon Steel Corporation said that the company is being forced to increase per tonne prices substantially for the April to September 2011 period or the first half of fiscal 2011. He added that "We will have to ask for an increase of about JPY 20,000."
The increases will likely end up being passed on to consumers in steeper retail prices for vehicles, which require one tonne of steel plate to produce per unit.
Although steelmakers plan to negotiate steel prices with automakers and electronics manufacturers later this month, analysts say that agreements won't be reached quickly.
Carmakers and other manufacturers are struggling to recoup sales after a slump due to the end or scaling back of government subsidy programs for energy saving products. Soaring raw material costs are the main reason for the planned steel price hikes.
According to a leading trading house, iron ore due for April to June 2011 shipment to Japan rose to more than USD 170 per tonne, higher than a record annual average through fiscal 2009. That figure was a 20% jump over the price asked for the previous three months.
Iron ore prices are expected to rise again in the July to September 2011 period because of strong demand from China and unstable supplies from Brazil, where heavy rains caused a drop in production.
Analysts say the price of coking coal could surge to a record level after April, due in part to massive flooding in Australia, a major coal supplier. Coal prices for January to March 2011 were set at USD 225 per tonne.
In addition to soaring raw material prices, shorter contracts with major suppliers of resources are a big headache for steelmakers. Steelmakers for years have had one year supply contracts with resource companies.
But they were forced into three-month contracts last year after resource behemoths created through mergers used their enormous bargaining clout to cash in on surging raw material prices.
BHP Billiton also wants contracts for coking coal used in blast furnaces cut to one month from three, starting next month.
Mr Eiji Hayashida chairman of the Japan Iron & Steel Federation is staunchly opposed to the demand. He said that "That would make it impossible for us to come up with reliable long term sales estimates. Automakers and electronics companies would not be able to draw up purchasing plans, either."
But Japanese steelmakers are unlikely to be able to avoid paying higher prices for raw materials due to the growing oligarchic nature of the global raw materials market and China's increasing clout as a leading importer of raw materials.
( Source: www.steelguru.com )