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Toyota to seek 30 pct cut in steel price

The global financial crisis has hammered demand for cars and the raw materials used to build them, and analysts have said a big reduction when steel price negotiations begin early next year was widely expected.

But JPMorgan auto analyst Takaki Nakanishi said the brokerage was currently assuming a decline of 10,000 yen ($110.5) per tonne, against a cut of 30,000-35,000 yen ($331-386) reported in the Nikkei, leaving room for far bigger cost improvements next year.

“If a leading manufacturer like Toyota takes the position of demanding prices be cut to 2005/06 levels, it could have a major impact on steel price negotiations worldwide,” he wrote in a report.

A Toyota spokesman said nothing had been decided regarding next year’s talks. Nippon Steel, whose shares fell 3.7 percent to 285 yen by late afternoon trade, declined comment.

Toyota, the world’s top automaker, and Nippon Steel, the world’s second-largest steelmaker, typically kick off price negotiations in Japan as the market leaders, setting a benchmark and starting point for other manufacturers’ negotiations.

If a reduction is agreed, it would mark the first steel price cut in seven years, the Nikkei said.

Steelmakers had been raising prices on the back of robust demand, driven by China and other emerging economies and jumps in iron ore and coal prices. But demand has shrunk in recent months as the global economic downturn slams the brakes on car sales.

Ashvin Chotai, managing director of Intelligence Automotive Asia, a consultancy, has forecast global light vehicle sales will shrink by 6.5 million units in 2009, to an estimated 60.6 million.

Toyota itself is expected to slash its 2009 sales forecast by at least 1 million vehicles, and outline plans to cut costs as the financial crisis threatens the industry.

A price reduction of 30,000 yen per tonne, for purchases for the business year starting next April, would represent cost cuts of nearly 300 billion yen for Toyota, the Nikkei said.

“This would partially mitigate lower volume and the negative impact of the yen appreciation, both of which are concerns going forward,” JPMorgan’s Nakanishi wrote.

“An important factor with regard to auto industry fundamentals is the degree to which falling raw material costs can be turned into earnings opportunities.”

Shares of Toyota were down 0.7 percent at 0543 GMT, while the Nikkei average had fallen 1.2 percent.