Huge steel merger planned for 2012

Kyodo News

Nippon Steel Corp. and Sumitomo Metal Industries Ltd. said Thursday they plan to merge by Oct. 1, 2012, creating the world’s second-largest steelmaker in terms of crude steel production capacity.

The biggest and No. 3 steelmakers in Japan are expected to take advantage of the merger to enhance their domestic bases and competitiveness and jointly explore overseas markets to counter fast-growing Chinese steelmakers and catch up with the world’s leader, ArcelorMittal, which is based in Luxembourg.

“We would like to integrate business resources to accelerate our global strategy,” Nippon Steel President Shoji Muneoka told a news conference. “The two companies could combine their production bases at home and abroad to create a global production and sales network.

“We will seek to develop into one of the world’s largest integrated steelmakers,” Muneoka said.

As steel demand has been growing in emerging countries, Nippon Steel and Sumitomo Metal will place priority on overseas demand.

The merger is expected to help the two companies strengthen their bargaining power in negotiations with iron ore and coking coal producers amid hikes in prices of these steelmaking materials.

Nippon Steel Chairman Akio Mimura and Sumitomo Metal Chairman Hiroshi Shimozuma called on Chief Cabinet Secretary Yukio Edano on Thursday evening to request government support for the merger.

The merger plan indicates “the management teams’ determination to survive global competition,” Prime Minister Naoto Kan told reporters.

Economy, Trade and Industry Minister Banri Kaieda welcomed the planned merger as serving as a “pioneer case” for the promotion of industrial reorganization to create globally competitive companies.

Recent years have seen a global steel industry realignment, including the creation of ArcelorMittal and the consolidation of Chinese steelmakers.

Nippon Steel and Sumitomo Metal have formed a capital alliance and integrated their production of stainless steel products in recent years. Nippon Steel has a 9.4 percent stake in Sumitomo Metal, while Sumitomo Metal holds 4.2 percent of Nippon Steel shares.

Nippon Steel fell to sixth place in 2009 from second in 2008 in global crude steel production rankings, as its output was hit by the global recession from late 2008, Britain’s Metal Bulletin reported last June.

China’s Hebei Iron & Steel Co. meanwhile rose from sixth place to second after ArcelorMittal, followed by Chinese firms Baosteel Group Corp. and Wuhan Iron & Steel (Group) Corp. South Korea’s Posco was in fifth place.

Nippon Steel and Sumitomo Metal now have no specific capacity consolidation plans, Sumitomo Metal President Hiroshi Tomono told the news conference.

Nippon Steel was created in a merger between Yahata Steel and Fuji Steel in 1970. In fiscal 2009 to March 2010, its group sales totaled about ¥3.5 trillion. Its employees numbered 52,205 at the end of the year.

Sumitomo Metal, founded in 1949, reported group sales in fiscal 2009 at some ¥1.29 trillion and had 24,000 workers on its payroll.