TOKYO - Nippon Steel Corp and other steelmakers have agreed with Toyota Motor Corp to cut steel prices by more than 10 percent this business year, a newspaper said, a smaller-than-expected price cut.

Nippon Steel shares rose more than 7 percent after the news and other steelmakers also gained.

Asian steel prices more than halved to below $500 a tonne from record highs early last year and are now set to drop more amid slumping demand and sharp falls expected for the price of iron ore, a key ingredient for making steel.

The newspaper said auto steel prices will fall by about 15,000 yen ($150) per tonne from June, marking the first price reduction in seven years and one of the biggest cuts ever.

It added that steelmakers are expected to slash prices for other automakers, shipbuilders and electronics companies too.

The size of the price reduction is far smaller than expected, Mizuho Securities analyst Hiroshi Matsuda said. It is hard to understand why Toyota would agree to this price.

A Nippon Steel spokesman declined to comment. A Toyota spokeswoman said the company was checking the report.

A sharp drop in global sales and high material costs have led Toyota to forecast an operating loss of 450 billion yen in the year ended last month, the first consolidated operating loss in its history. Nippon Steel has sealed a year-on-year discount of around 57 percent on coking coal contracts with BHP Billiton Mitsubishi Alliance (BMA) for this business year, a Nippon Steel official has said. [ID:nSYD438785]

Toyota may seek further cuts, depending on the results of iron ore price talks, the paper added.

The automaker agreed on a steel price hike of about 28,000 yen last business year, it said.

Nippon Steel shares jumped 7.4 percent to 336 yen and shares in Toyota rose 3 percent to 3,820 yen in morning trade, outperforming a 1.5 percent gain in the benchmark Nikkei average .N225. (Reporting by Sachi Izumi; Editing by Edwina Gibbs)

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