Onomichi to Use More Korean Steel After Settling Price Talks

Onomichi Dockyard Co. will use more imported steel from South Korea after settling price talks with Posco (005490) before resolving discussions with its supplier in Japan.

The shipbuilder has agreed with Posco to accept a price increase of about 5,000 yen ($50) a metric ton for the three months to Sept. 30, or less than 10 percent more than the previous quarter, President Takashi Nakabe said yesterday in an interview. Nippon Steel & Sumitomo Metal Corp. (5401), the world’s second-largest steelmaker, and Toyota Motor Corp. (7203), its largest auto customer, agreed to raise prices by 10 percent, the Nikkei newspaper said yesterday.

Onomichi’s decision reflects the pressure on Japanese shipyards to save money on steel as overcapacity curbs earnings. Kobe-based Onomichi is unable to accept price increases of more than 5,000 yen a ton, Nakabe said.

While still negotiating prices with domestic supplier JFE Holdings Inc. (5411)’s steelmaking unit, Onomichi plans to boost its purchases of steel from Pohang-based Posco to about 15 percent this quarter from 10 percent in the previous three months, Nakabe said. Kim Ji Young, a Seoul-based spokeswoman at Posco, declined to comment.

“I’d like domestic mills to consider competition with overseas suppliers more seriously,” Nakabe said in the interview. “Imported steel prices and Japan’s export prices remain lower than what domestic mills offer in Japan.”

Raw Material Costs

Japanese steel companies have been seeking increases to absorb higher raw material costs and the weakening of the domestic currency. Nippon Steel and Toyota agreed to raise steel prices by 10,000 yen ($100) per ton for the first half of the year to March 2014, compared with the previous six months, the Nikkei newspaper reported yesterday without saying where it got the information.

The price of Nippon’s steel products averaged 77,700 yen per ton in the six months ended March 31, according to a May 10 statement from the Tokyo-based company. JFE Steel Corp.’s average price was 68,400 yen in the period, the parent company said on April 23.  

Closely held Onomichi, which operates shipyards in southern Japan’s Hiroshima prefectures, got all its steel from JFE before the collapse of Lehman Brothers Holdings Inc. in 2008, according to Nakabe. It uses 7,000 tons to 8,000 tons of steel per month.

To contact the reporter on this story: Masumi Suga in Tokyo at msuga@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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