The world's fourth-largest steel producer by output, Pohang Iron and Steel Company, (POSCO) today said that it was in talks with Japanese car maker Toyota to supply steel for its factories, as the world's largest automaker is set to cut cost as it faces its first ever operating loss in over seventy years.

POSCO supplies steel to all major Japanese car manufacturers and has a contract for supplying steel to Toyota's plant in Thailand but does not have any steel supply contract with the Japanese car maker for supplying steel for its plants in Japan.

Toyota has now decided to sign contracts with the Korean steel maker for the first time to supply steel to its Japanese plants as well as its plants in North America.

The deal will be beneficial to both companies as the global demand for steel and cars has fallen over the cliff and Toyota, who is looking to cut costs, will be able to procure steel from POSCO at low prices, thereby putting pressure on Japanese steel manufacturers, Nippon Steel and JFE to lower their prices, who currently supply steel to Toyota.

Toyota, traditionally has always bought steel from local steel manufacturers, but with the Korean won losing 26 per cent against the US dollar, the idea of buying steel for the Korean steel manufacturer looks very financially lucrative.

Last month, Toyota's sales hit by global recession was forced to forecast its first annual loss in over 70 years and had asked the world's second biggest steel maker, Nippon Steel and other steel manufacturers to cut their steel prices by as much as 30 per cent due to decline in demand in both the car and steel industry.

This month, Toyota had announced closing all its Japanese plants for 11 days in order to reduce output and its stockpile of inventories.

POSCO, had announced last month that it would cut its output for the first time in its 40-year history and hinted this year that the conditions in the steel industry may justify further cuts.

On Saturday the Orissa government, led by Biju Patnaik recommended to the central government to grant prospecting license to POSCO for Khandadhar iron ore mines overlooking other companies such as Kudremukh Iron Ore Limited and private companies like Jindal Photo Limited, Jindal Strips and Bhusan Power and Steel.

Posco is building a $12-billion steel plant near Paradip in Orissa, with four blast furnaces, an electricity plant and housing colonies. The plant will have an annual production capacity of 12 million tons and is slated to start production in 2010.