UPDATE 1-Honda CEO fears more price hikes for U.S. steel

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TOKYO, May 29 (Reuters) - Honda Motor Co's (7267.T) chief executive said on Thursday the Japanese automaker had been asked to pay more by a U.S. steelmaker despite a contract agreed earlier this year, and added he feared other suppliers may follow suit.

Global steel prices have soared on tight demand, with brisk orders for construction machinery, ships and energy-related products in Russia, the Middle East and other emerging markets.

Honda sets product prices with U.S. steelmakers at the start of every year, but one undisclosed supplier recently imposed higher prices, Takeo Fukui said.

"It came all of a sudden, ignoring the contract," he told reporters after a news conference to launch a new minivan in Tokyo.

"I'm hearing that so far it's one company, but it may spread to others. It's an abnormal situation," he said, adding that Honda was probably not the only buyer targeted.

Honda has just begun talks with domestic steelmakers after industry leader Toyota Motor Corp (7203.T) concluded negotiations with top supplier Nippon Steel Corp (5401.T), likely agreeing on a price rise of more than 30 percent.

Most of the steel that Honda uses in Japan comes from domestic makers, with some from South Korea's Posco (005490.KS). Similarly, almost all the steel used for North American production comes from non-Japanese makers such as United States Steel Corp (X.N), a spokesman said.

Fukui said the price increase from U.S. makers tended to be non-negotiable. Already, the scale of increase was probably bigger than what Nippon Steel was asking for, he said.

"If we refuse, they cut off supply. We're in a weak position," he said, adding that the extra rise had not been factored in to Honda's budget for raw materials this year.

Fukui noted that Honda faced a similar situation five or six years ago and stood its ground at the time, arguing it was a breach of contract. Back then, domestic steelmakers Nippon Steel and JFE Steel (5411.T) filled the supply hole, flying steel in from Japan for the first few months after Honda cut off its ties with the U.S. steelmaker, he said.

"Now, we can't get that kind of help," he said.

A Toyota spokesman declined to comment on whether it had received a similar request in the United States. Nissan Motor Co (7201.T) had no immediate comment.

Fukui said with prices this high, Honda was trying to overhaul the structure of vehicles to enable it to use less steel products. "It can be done," he said.

Honda plans to produce 1.46 million cars in North America this year, up 2 percent from 2007. (Reporting by Chang-Ran Kim; Editing by Hugh Lawson)