June 28 (Bloomberg) -- Posco became the first non-Japanese steelmaker to enter a group of Toyota Motor Corp.'s closest suppliers, rivaling domestic auto-sheet providers, including Nippon Steel Corp.
The Japanese unit of the South Korea’s biggest steelmaker was formally accepted into the Kyohokai, whose 222 members are the top 1 percent of the carmaker's suppliers, group spokesman Nakaji Honda said. Posco started supplies to the Japanese factories of Asia’s No. 1 carmaker in 2009 and its plants in Indonesia and India in 2003.
The weakening won has made South Korean products cheaper than Japanese goods, giving Posco an edge over its Japanese rivals weighed down by the rise in the yen. Being part of the top suppliers group will enable Posco to win steady orders from Toyota, which is lifting production in emerging economies, said Takeshi Miyao, an analyst at a research firm Carnorama Japan.
“Toyota is undergoing a paradigm shift in purchasing by breaking up its existing supply chain as it looks for ways to lower production costs,” Miyao said. “Posco’s entry will have a negative impact on Japanese steelmakers.”
Toyota sources parts from more than 40,000 suppliers, Miyao said. The Kyohokai comprises mostly Japanese companies including Denso Corp., Aisin Seiki Co. and the nation’s five biggest steelmakers, according to the group’s website. Overseas companies in the group include Delphi Automotive Systems Japan Ltd., a unit of the U.S. parts supplier separated from General Motor Co., and a unit of German auto-parts supplier Robert Bosch GmbH. Posco is the first South Korean company in the group, Honda said.
“Opening an account with Toyota was the first step for Posco and the invitation into its suppliers group means its technology level has been accepted,” Miyao said.
Posco’s sheet shipments to Japanese carmakers will rise after the merger between Nippon Steel and Sumitomo Metal Industries Ltd. in October as the buyers will probably reshuffle suppliers to avoid over-reliance on one company, Chris Kim, an analyst with Seoul-based Samsung Securities Co., said in a June 21 report. The South Korean mill’s sales may rise more than 1.8 million metric tons, lifting operating profit by 400 billion won ($346 million) in the next two years, he said in the report.
“As the merger would force them to rely on one company for more than 60 percent of their needs, we believe next year they will turn more to Posco,” Kim said in the report. “With Japan’s three major carmakers consuming more than 13 million tons of steel sheets annually, we believe Posco has huge growth potential.”
Kim Ji Young, a Seoul-based spokeswoman for Posco, confirmed the company’s entry into the group. She declined to specify Posco’s supply volume to Toyota.
“Regardless of regions or nations, Toyota plans to openly procure parts from competitive suppliers worldwide,” said Joichi Tachikawa, a spokesman for the carmaker, based in Toyota city, Aichi prefecture.
The Japanese currency, which gained more than 50 percent in the past five years, traded at 79.63 to the dollar as of 9:39 a.m. in Tokyo. The yen reached a postwar high of 75.35 against the dollar last year. In contrast, the South Korean won has weakened about 20 percent in the period and traded at 1,153.80.
Nippon Steel President Shoji Muneoka last month called on the government to take steps to enable domestic manufacturers to compete with global rivals “on an equal footing.” The strong yen, rising energy and labor costs and taxes are hindering the competitiveness of Japanese companies, he said.
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