Major Japanese Steel Producer Signals Price Hikes, May Push Up Car Prices

Major Japanese Steel Producer Signals Price Hikes, May Push Up Car Prices
A file image taken inside Nippon Steel's iron mill plant at Kimitsu city in Chiba prefecture, suburban Tokyo. JIJI Press/AFP via Getty Images
Naveen Athrappully
Updated:

Nippon Steel Corp., one of the largest steel producers in the world, has announced that it could soon raise the price of steel, a move that can add to the inflationary pressure on the car industry.

There has been a sharp cost increase for input materials like coking coal and iron ore, Takahiro Mori, executive vice president of Japan’s biggest steelmaker, said in an interview with Bloomberg. The company will have to pass on the additional costs.

“Otherwise our profits will be squeezed,” Mori said. “The biggest concern is the domestic construction sector,” he said. As Nippon Steel cannot shoulder the entire cost, “all we need is to win understanding from those customers through discussions.”

In an interview with Reuters, Mori indicated that the company could increase the price of its products by 30,000–40,000 yen ($236–$315) per ton. Over the past year, Nippon Steel had raised prices to record levels, by 50 percent, as the cost of raw materials surged. One of the key clients of the company is auto manufacturing giant Toyota Motor Corp.

Sheet metal makes up around 5 to 22 percent of a vehicle’s total cost. As such, any increase in steel prices will inevitably add to the cost of car production and would get passed on to end customers.

In the United States, car prices have already risen by an abnormal magnitude. In the past 12 months, new vehicle prices have increased by 15 to 20 percent year over year compared to the usual 2 to 3 percent seen between 2012 and 2018, Thomas King, president of the data and analytics division at J.D. Power, an automotive research firm, said in a May 25 press release.

The average new vehicle price in May is expected to hit a record of $44,832, which is a 15.7 percent increase from a year back.

“For the balance of 2022, increased vehicle availability, higher interest rates, and some cooling of used-vehicle values likely will lead to slower transaction price growth—but are unlikely to lead to declines,” he said.

Automotive sales in the United States have declined for every single month this year when compared to the same periods in 2021, according to data from automotive industry portal MarkLines. In April 2022, new vehicle sales declined by 18 percent from April 2021 to 1,256,224 units.

According to J.D. Power, new-vehicle retail sales in May are expected to register a 20.9 percent year-over-year decline. “For the 12th consecutive month, month-ending retail inventory will be below one million vehicles,” King said.

“The industry sales pace is being dictated by how many units are delivered to retailers during the month, and demand far exceeds supply. Record transaction prices are the result.”

Related Topics