Toyota Motor Corporation and Mitsubishi Heavy Industries Ltd agreed to pay higher price for steel

Toyota Motor Corporation (TYO:7203) and Mitsubishi Heavy Industries Ltd. (TYO:7011) have agreed buy steel from Nippon Steel Corporation (TYO:5401) at higher price. Because of soaring cost of raw materials, Nippon Steel Corporation had to increase its product prices. Under the new agreement, Toyota is going to pay 25,000 yen to 30,000 yen for one metric ton of steel and Mitsubishi will pay 30,000 yen. Last month, Nippon Steel said that higher raw material costs would decrease the annual profit margin by 41%. For better profit prices had to be increased. In the last fiscal year ending on March 31, average product prices were 80,200 yen a ton. Bloomberg reports:

“This shows that steelmakers can pass on materials costs to customers,'' Toshiyuki Johno, an analyst at Nikko Citigroup Ltd. in Tokyo, said in a report today. He raised his target price for the shares to 900 yen from 800 yen and rates them ``buy.”

Nippon Steel gained 5 percent to close at 689 yen on the Tokyo Stock Exchange. The shares have climbed 18 percent in the past four trading days, the biggest four-day rally since September 2005.

Toyota has said it plans to raise prices by as much as 2.1 percent in North America this month to help offset rising materials costs.

This new agreement will also influence other Japanese steel makers and their customers. Another Japanese steel maker JFE Steel Corporation will also increase their prices. The latest steel price hike will eventually increase the price more than 100,000 yen per ton for the first time in last 26 years in Japan.

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