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Japanese Steelmaker Close To Securing Price Hikes

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EDITOR'S NOTE: The supply chain crisis is shifting the balance of power between producers and suppliers in many industries these days. One prime example is the Japanese steel and auto industries. Carmakers once dominated these relationships, but with the supply limited and demand rising, steel companies are taking the upper hand in Japan. Nippon Steel Corp. Executive Vice President Takahiro Mori said Friday, per Yahoo! Finance, “We’ve seen big progress in correcting [domestic steel prices]. Second-half contracts have been almost settled.” While the shift in power between one industry and another is interesting, it also likely means that no matter who makes more money, the consumer will end up paying for it.

(Bloomberg) -- Japan’s top steelmaker said it’s close to securing price hikes from domestic manufacturing giants, signaling the balance of power is shifting from buyers to sellers as the alloy’s price surges.

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“We’ve seen big progress in correcting contract prices,” Nippon Steel Corp. Executive Vice President Takahiro Mori said Friday in an interview. “Second-half contracts have been almost settled.”

Japan’s steel suppliers are gaining the upper hand in a market where carmakers, their biggest customers, have typically had more bargaining power. Senior executives of the steelmaker have been increasingly vocal in seeking better terms for domestic contract prices to bridge the gap with international prices. Back in May, the president warned the company can’t take responsibility for stable supply unless unreasonably low domestic prices are corrected.

Mori said domestic steel users have broadly accepted calls by the company to raise contract prices to reflect cost surges. Nippon’s average price for its products sold both overseas and at home rose to the highest since at least 2008 in the three months through September amid tight supply and robust demand.

The steelmaker is also trying to bring more changes in the way contracts are implemented, as part of its push to amend traditional business practices in Japan. It’s seeking to conclude talks before it begins delivery, shorten the contract terms to three months from six now and deliver products only after agreeing on prices, he said. Talks with buyers for the second-half for the year ending March typically end around February, although delivery starts before that.

The executive declined to elaborate on the details, including naming the customers or the size of the price hikes, saying the negotiations are private. Talks between Nippon Steel and Toyota Motor Corp. are held twice a year and are closely watched as they typically serve as a benchmark.

See also: Nippon Steel Seeks Injunction Against Toyota in Patent Suit

Still, “the question is what will happen when the market flips around,” said Takeshi Irisawa, an analyst at Tachibana Securities Co. Users like Toyota could demand price cuts when conditions for steelmakers turn sour, he said.

Mori expects the recovery in demand to continue, although the company will closely monitor the impact of the resurgence in coronavirus infections in some regions.

The World Steel Association said last month demand should climb again next year and the main driver of growth will be outside China as the country’s real estate crisis undermines consumption. Still, China’s drive to cut steel output to curb emissions alleviates the risk of a collapse in the world’s biggest market, Mori said.

(Updates with analyst comment in seventh paragraph)

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Originally posted on Yahoo Finance.

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