RPO83

Tokyo, Oct. 29 (Bloomberg) -- Mazda Motor Corp., Japan's fifth-largest automaker, said it rejected demands by the country's steelmakers to increase prices because it isn't profitable enough.

Nippon Steel Corp. and other Japanese steelmakers began negotiations with automakers in May for a price increase of about 10 percent. Toyota Motor Corp. and Honda Motor Co. usually lead the negotiations with Nippon Steel to set the price of steel, forcing smaller automakers to follow suit.

Mazda, a third owned by Ford Motor Co., returned to profit in the year ended March 31, and analysts expect it to report first- half profit more than doubled to 3.1 billion yen ($25 million). Automakers buy 80 percent of the steel produced by Japan's blast furnace steelmakers sold under contract.

``We're not in a position to agree to a price increase,'' said Mutsumi Fujiwara, Mazda's senior managing director in charge of parts purchasing. ``We're not as profitable as other automakers.''

Mazda, which reports final results on Nov. 12, may release preliminary figures on Oct. 31.

Japanese steelmakers are counting on a price rise from their biggest customers to return to profit after the U.S., China and European Union countries raised import tariffs on steel this year. Four of Japan's top five steelmakers posted losses in the fiscal year ended March 31.

``We'd like to raise the prices because they're too low for auto companies in Japan,'' said Takashi Kanke, a Nippon Steel spokesman. ``Some of the price rise will be accepted.''

Secured Increases

Following months of talks, Japanese steelmakers agreed with some of Japan's top household appliance makers to raise long-term shipment prices by about 10 percent, Sumitomo Metal Industries Ltd., Japan's third-largest steelmaker, said last month.

They now want prices of cold-rolled coils sold to Japanese automakers to rise to international levels. Steel prices in Japan have been lower than overseas prices because of a glut of steelmaking capacity in the country.

Mazda said it depends on supplies of Japanese steel because the quality from suppliers in other nations doesn't meet its standards.

While three of Japan's top five automakers posted record profits last fiscal year, helped by a weaker yen and lower costs, the companies are not ready to accept higher prices for steel.

``We can't share profits because we aren't making enough profit to share,'' Fujiwara said.

Nissan Shakeup

Japan's automakers, led by Chief Executive Carlos Ghosn, shook up Japan's steel industry in 1999 when they offered to buy more steel from a smaller group of suppliers on the condition prices were cut.

Ghosn has said the steelmakers should be looking at cutting costs, not raising prices.

He won an average 20 percent cut in product prices over three years for Nissan, now 44 percent owned by France's Renault SA. Ghosn said he wanted another 15 percent lopped off steel prices from April 2002.

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*Retired.