Japan's biggest steel company warns of more price rises in blow to car, appliance makers

Nippon Steel's push for further increases comes despite recent downturns in Asian steel markets

A worker checks steel coils at facility in Tokyo. Japanese manufacturers are feeling the pain of soaring prices of steel and other materials. Reuters

Japan’s biggest steelmaker has warned it will push through more price rises, in a blow to car makers and machinery industries already grappling with surging costs.

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

“Otherwise, our profits will be squeezed.”

Nippon Steel and its domestic peer JFE Holdings' steelmaking unit have already boosted prices by half to record levels over the past year, as the cost of raw materials surged.

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

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

Auto manufacturing major Toyota Motor, one of Nippon’s most important customers, has warned that “unprecedented” increases in raw material costs will weigh on its earnings. It forecast a fall in operating profit for the current year.

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

Mr Mori said it is not unreasonable to ask for higher prices from domestic manufacturing customers, many of whom ship their products outside Japan and are benefiting from the yen’s steep decline.

While the weaker currency makes it more expensive to import commodities, it makes Japan-made products competitive in overseas markets.

For Nippon Steel, the bigger challenge will be to secure more rises from customers in the building industry as they consume the material only in the home market, he said.

“The biggest concern is the domestic construction sector,” Mr Mori said. Still, Nippon Steel can’t shoulder the entire cost, “so all we need is to win understanding from those customers through discussions”.

In a further signal that the metal is getting pricier, Mr Mori said Nippon Steel will separately begin talks with customers to seek better terms for its value-added products, such as lower-carbon steel, amid a global shift to net-zero emissions.

Nippon Steel’s push for further rises comes despite recent downturns in Asian steel markets. Steel prices in China have slumped as the nation’s Covid Zero strategy has sapped demand and taken a heavy toll on the economy.

China’s benchmark hot-rolled coil futures on Thursday fell to 4,632 yuan a tonne ($688), near the lowest price in more than four months. This is at a level which Mr Mori says Asian steelmakers cannot make profits.

Still, demand and prices have bottomed and Asian markets will likely turn to upswings within a couple of months supported by China’s measures to bolster the economy, he said.

China has unleashed a range of measures to prop up growth, including cheaper borrowing rates for some home buyers and a 140 billion yuan package to support business.

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

The steelmaker’s costs are set to increase by more than 40,000 yen ($314) a tonne by the end of September. This is compared with the quarter which ended in March, as prices of raw materials, fuels and distribution surge, according to an estimate from the company.