(Adds comments, iron ore and share prices, details on price negotiations, and background from paragraph 3)
TOKYO, Aug 24 (Reuters) - Shares of Nippon Steel & Sumitomo Metal Corp and other Japanese steelmakers fell on Thursday after media reports said the country’s biggest producer of steel had agreed on price cuts for the six months through September with Toyota Motor.
Nippon Steel, which agrees twice a year to prices with Toyota that are considered a benchmark for both the steel and auto industries, had earlier said it wanted to raise prices by 5,000 yen per tonne for its main customers.
The surprise price cut is expected to weigh on margins for Japanese steelmakers, which have forecast solid profit growth in the business year through March 2018 because of expected product price hikes, especially with the recent surge in steel-making ingredients such as iron ore.
Chinese iron ore futures rose to their highest level in more than five months on Tuesday as falling stockpiles of the steelmaking raw material at the country’s ports reflected strong demand.
“We think that the price cuts are significantly below expectations - some market participants were actually hoping for price hikes,” Thanh Ha Pham, equity analyst at Jefferies, said in a report issued on Thursday.
The Nikkei business daily reported that Toyota will drop its wholesale steel prices for its parts suppliers by around 5,000 yen ($46) per tonne in the October-to-March period.
The cuts come after Japan’s biggest automaker concluded negotiations with Nippon Steel for the six months through September this year, and Toyota is passing reductions in prices on to its suppliers, the Nikkei said.
Nippon Steel agreed with Toyota to reduce steel product prices by a several thousands of yen per tonne for the April-September period, Kyodo News said on Wednesday.
Nippon Steel declined to comment on the reports, saying it does not comment on specific negotiations. A Toyota spokeswoman also declined to comment on price negotiations.
Denso, Toyota’s biggest supplier, in July forecast that higher raw materials costs would curb operating profit by 16.0 billion yen in the year through March 2018, more than an initial forecast for a drop of 14.0 billion yen.
This marks a step backwards from last year, when lower raw materials costs had a positive impact of 4.0 billion yen.
Toyota also declined to comment on its outlook for raw materials prices but many Japanese automakers are expecting higher materials costs in the year through March 2018. Nissan Motor Co said earlier it expects a rise in commodity prices to weigh on operating profit by 90.0 billion yen.
Nippon Steel was down 2.4 percent at 0220 GMT, while JFE Holdings Inc, Japan’s second-biggest steelmaker, fell more than 4 percent. Third-ranked steelmaker Kobe Steel Ltd was down more than 6 percent.
The broader Tokyo market was off by 0.1 percent.
$1 = 108.9800 yen Yuka Obayashi, Naomi Tajitsu and Ayai Tomizawa; Editing by Aaron Sheldrick and Tom Hogue