Nikkei reported that Toyota Motor and its steel sheet suppliers agreed to a price cut of 6% for the April-September half as iron ore and coal prices continue to slip. The automaker reached an agreement with Nippon Steel & Sumitomo Metal and other major Japanese steel producers allowing it to pay 6,000 yen ($47.86) less per ton of steel sheet this half than last.

Toyota negotiates prices with the suppliers twice a year based on resource costs. Steel producers will pay $52 per ton of iron ore from major resource suppliers during the July-September quarter -- 16% less than in April-June. Coal prices dropped 15% coming in to this quarter, to $93 per ton. Prices for both materials are at their lowest since fiscal 2010.

Toyota's suppliers apparently fought to minimize the reduction to the price of steel sheet in light of rising import costs amid a weak yen. Producers are also spending more on personnel costs and investment to expand overseas production and product development. The companies argued their case successfully last half, when Toyota agreed to keep steel sheet prices steady despite declining raw materials costs in light of its own strong performance in preceding periods.

But the carmaker seems to have insisted on price cuts this time in light of further plunges in resource costs and its own faltering earnings in recent months. Producers were likely in no position to push back, given that orders for sheet, rods and other steel products used in automobiles sank 10% year on year during the April-June quarter as demand slowed.

The agreement to trim prices will likely take a bite out of steel producers' profits, which have been beset by dropping prices for thin steel sheet and other products on the open market since the beginning of the year. Careful cost-cutting measures will be a necessity if companies intend to rein in their losses for the rest of this fiscal year.