Nippon Steel Corp. (5401.TO) and other major Japan...

2008-06-26T08:24:00.000-04:00

Nippon Steel Corp. (5401.TO) and other major Japanese steelmakers have accepted Rio Tinto's (RIO) demands for a 100% on-year increase in prices of Australian iron ore in fiscal 2008, the Nikkei reported in its Tuesday evening edition, citing company sources.

The steelmakers have already agreed to a 65% hike in prices of Brazilian-made iron ore.

Because the latest decision is expected to push up their procurement costs for the key material for steel products by an additional Y100 billion, they are likely to ask their main customers to accept additional hikes in prices of steel products.

On Monday, Baosteel Group Corp., one of China's largest steelmakers, agreed to accept higher prices for iron ore supplied by Rio Tinto, a British-Australian mining firm. Japan's five major steelmakers - Nippon Steel, JFE Steel Corp., Sumitomo Metal Industries Ltd. (5405.TO), Kobe Steel Ltd. (5406.TO) and Nisshin Steel Co. (5407.TO) - are expected to officially accept the hikes this week.

Australian iron ore accounts for about 60% of Japan's total imports of the material. The domestic steelmakers will also likely agree to similarly large price increases for iron ore supplied by BHP Billiton, another Anglo-Australian mining group.

A warning from UPS and continuing commodity price pressure have the market in a bearish mood this morning. Economic data on home prices, and consumer sentiment are expected to be bleak. TOP STORIES

-- UPS warns on Q2 profits.

COMMODITIES/BONDS

Crude: ($138.03, +$1.29)

Gold: ($889.70, +$2.50)

10-Year Treasury Note: (4.156%)

EUROPEAN MARKETS

European bourses are broadly lower under pressure from higher commodity prices and inflation fears. The consumer sector is under pressure. Citigroup told clients to sell shopping center owner Liberty Int'l, and Tesco fell after an investment firm cut their sales forecast for the retailer. Travel and leisure names also underperformed with British Airways and Carnival Cruiselines (CCL) falling in London. Morgan Stanley estimates Euro leisure and hotel stocks have further to fall under the burden of recession, high financial leverage and inflation. FTSE 100: -1.3%ASIAN MARKETS

Soaring raw materials prices led to declines in shares of steel makers (Nippon Steel, Posco, Baosteel) and tire manufacturers (Bridgestone). Commodity trading firms Mitsubishi Corp and Itochu Corp advanced sharply, but Japan's largest consumer lender Aiful fell 5.9% after Lehman estimated 22% of its loans are insolvent according to a Bloomberg News report. Mainland China traded higher in a rebound led by real estate and financial names in hopes the market's 8-month decline is near an end.

Nikkei 225: -0.06%

Shanghai Comp: +2.2%

SECTOR COMMENTARYMaterials

Rio Tinto (RTP) and BHP Billiton (BHP) pushed through an 85% increase in the benchmark price for iron ore for China's top steelmakers according to the WSJ. Earlier this year Vale (RIO) won a 65% to 71% price hike with Arcelor-Mittal (MT). U.S. based iron ore and coking coal producer Cleveland Cliffs (CLF) soared by nearly 11% in Monday trading. Steel mills in Asia, including Nippon Steel, Posco (PKX) and Baosteel fell sharply on the news.

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