Nippon Steel, Sumitomo Metal to Merge
“Nippon Steel Corp. and Sumitomo Metal Industries Ltd. agreed to merge by next year, creating what would be the world’s No. 2 crude-steel producer and a tougher competitor to rivals in China and India.
The deal marks the first major consolidation in the Japanese steel industry in a decade and comes as the nation’s leading steelmakers struggle to regain their footing after the global recession. Caught between rising costs for raw materials and weak pricing power with auto makers and other key customers, Japan’s steelmakers have had difficultly boosting their profit margins.”
- Nippon Steel came in the international news in July when it announced a drop in profitability due to higher input costs. Sumitomo also reached the headlines in July by buying a stake in a Brazilian iron ore mine of Usiminas.
- The firm will first create a new holding company, and plans to slowly integrate operations, starting combined operation only at the end of 2012.
- New synergies are expected to be limited because of the far-stretching cooperation the firms are already involved in. However, the improved purchasing position will help the Japanese to compete with the large Chinese players in securing long term supply contracts with Brazilian and Australian miners. Furthermore, the management of the firms is looking to expand the product portfolio.
- It will be hard for the Japanese to create an even bigger company to compete with Chinese and Indian rivals. Regulatory officials will not oppose this deal, but merging with the country’s #2, JFE Steel, would create a domestic monopoly. The new company will mainly have to compete by exporting value added products, outperforming the Chinese in product quality.
©2011 | Wilfred Visser | thebusinessofmining.com