“Such a rapid increase in the input price for a key component will hurt the steelmakers’ financial profiles and squeeze earnings,” Sydney-based analysts led by Ian Lewis said today in a report. The mills may be “unable to fully pass on the higher costs to such customers as car makers, appliance makers and construction firms,” they said.
JFE Holdings Inc. (5411), Japan’s second-biggest steelmaker, said March 5 it would pay $200 a metric ton in a three-month contract with BHP. That compares with this year’s benchmark price of $129 a ton. The increase will improve the credit outlook for producers BHP, Rio Tinto Group (RIO) and Wesfarmers Ltd. (WESDA), Moody’s said.
Sumitomo Metal Industries Ltd. and Kobe Steel Ltd. (5406) also agreed to the same accord, Moody’s said in the report, citing reports it didn’t identify. Coking coal and iron ore supply contracts are traditionally negotiated for 12 months.
The “inevitable” shift away from annual agreements could “dent the financial and credit profiles of steelmakers by reducing the predictability of their main input costs,” Moody’s said. That would make it difficult for the steelmakers to negotiate “appropriate prices” with their customers.
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