Nippon Steel Corp. and Toyota Motor Corp. have agreed to price rises of more than 10 percent for car-use steel, media said, raising the prospect of steelmakers' earnings upgrades later this year.

The news boosted shares in specialty steelmakers such as Daido Steel Co. but weighed on automakers' stocks on concerns of an industry-wide cost burden reportedly of 70-80 billion yen ($570-660 million) stemming from the price rises.

Steel companies have been negotiating price rises with their biggest contract-based customers in the past two years as zinc, nickel, steel scrap and other raw materials costs soared while a price gap with foreign rivals widened on international markets.

The price hike would be the first in two years.

Toyota, Honda Motor Co. and other Japanese carmakers have reportedly fiercely resisted proposed price hikes, citing slowing car production at home and increasing car-sheet supplies following steelmakers' production boosts.

It's a bit of a surprise, said Takashi Aoki, vice president at the equity investment division at Fuji Investment Management.

If the price is raised by more than 10 percent as reported and the rise is implemented retroactively from April, steelmakers will have to upgrade their earnings forecasts for the year to March 2007.

The Nikkei business daily reported on Wednesday that Toyota had agreed to pay 10 percent or 10,000 yen ($82) more per tonfor Nippon Steel's specialty steel used to make auto parts.

Analysts had generally expected a price rise of about 5,000 yen per tonfor specialty steel.

Japan's biggest steelmaker and its biggest automaker -- whose agreements serve as the industry benchmark -- are also likely to agree to a price rise of around 5 percent for steel sheet used to make car bodies, the paper said.

Steel companies and automakers have a policy of not commenting on price negotiations.

Trade paper Japan Metal Bulletin also reported on Wednesday that an automaker had agreed to pay 10 percent or 10,000 yen more per tonfor specialty steel for products delivered from July.

Shares in Daido Steel rose 11.4 percent to close at 863 yen, Sanyo Special Steel Co. soared 12.4 percent to 909 yen and Mitsubishi Steel Manufacturing Co. gained 8.9 percent to 590 yen.

Nippon Steel ended up 0.8 percent at 863 yen.

Toyota slipped 0.1 percent to 7,510 yen, while Nissan Motor Co lost 0.2 percent to 1,317 yen.

Japan's top steel makers have been expected to revise up their conservative earnings forecasts for this business year when the price talks are completed.

Many of the companies booked record profits for the year ended in March 31 as soaring demand for Japanese cars, ships and construction machines worldwide boosted shipments of high-grade, custom-tailored sheet steel, helping improve profitability.

Nippon Steel, the biggest beneficiary of strong worldwide sale of Japanese cars, forecast in April a fourth consecutive year of record earnings for the business year to March 2008.

($1=121.69 Yen)

Toyota Japan