Nippon Steel, Toyota agree steel price cut - source

By Yuko Inoue and Nobuhiro Kubo

TOKYO (Reuters) - Japanese steelmakers led by the world No.2, Nippon Steel Corp, agreed with Toyota Motor Corp to cut steel prices around 10 percent, a source said, a smaller cut than expected that signals steel mills' earnings may not suffer too much.

Toyota, facing a global auto sector slump, may however seek a further price cut later this year after steel mills and miners such as BHP Billiton set the price of iron ore, a key raw material, analysts said.

"The size of the price reduction is far smaller than expected," Mizuho Securities analyst Hiroshi Matsuda said. "It is hard to understand why Toyota would agree to this price."

Shares in both Nippon Steel and JFE Holdings Inc, the world No.3, both jumped by nearly 9 percent after reports of the first price cut in autosheet in seven years.

That helped the iron and steel sector sub-index gain 6.6 percent, leading the Tokyo share market higher as the benchmark Nikkei share average rose 1.2 percent.

Toyota shares rose 2.7 percent, in line with other exporters, aided by a surge on Wall Street.

Amid slumping demand for cars, electronics and industrial machines, Asian steel prices have more than halved to less than $500 a tonne from record highs early last year.

Worries that Japanese mills faced sharp cuts in prices for autosheet steel have weighed on their shares.

Toyota informed one of its affiliated parts makers on Thursday to cut its assumed steel product price by 15,000 yen ($151) a tonne from June from an estimated 100,000 yen, a source with direct knowledge of the matter told Reuters.

He declined to be identified because of the sensitive nature of price negotiations.

The Asahi Shimbun daily reported that steelmakers would slash prices for other automakers, shipbuilders and electronics companies too.

Nippon Steel declined to comment while Toyota spokesman Keisuke Kirimoto said: "We will work to reduce costs of not only steel but other raw material in accordance with their market situation."

Yuji Matsumoto, analyst at Nomura Securities, said Nippon Steel's operating profit would exceed his forecast by more than 100 billion yen if the price cut was held at 10 percent but he also saw risks of another price cut.

Media have reported that the price of auto sheet could fall in stages, allowing steelmakers to cope with two-to-three months of supply of costly coal carried over from last year.

A sharp drop in global sales and high material costs have pushed Toyota to forecast a 450 billion yen operating loss in the year to March 31, the first such loss in its history.

Nippon Steel last month sealed a price cut of around 57 percent on coking coal contracts with BHP Billiton Mitsubishi Alliance (BMA), compared with what it was paying a year earlier.

(Additional reporting by Sachi Izumi and Taiga Uranaka)