Archive

Posts Tagged ‘Nippon Steel’

Nippon Steel, Sumitomo Metal to Merge

February 3, 2011 Comments off

“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.”

Source: Wall Street Journal, February 3 2011

Observations:

  • 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.

Implications:

  • 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

Advertisements

Arcelor raises steel price; Nippon steel faces higher costs

July 28, 2010 Comments off

“ArcelorMittal, the world’s largest steel maker, said it is going to increase its prices for steel by 10% this year, even as it expects steel demand to weaken throughout most of the world.

‘We need a 10% price increase for spot business in order to replicate our profit level in the second quarter,’ said Chief Executive Lakshmi Mittal.”

Source: Wall Street Journal, July 28, 2010

“Nippon Steel Corp. said Wednesday that a rebound in steel demand, particularly in Asia, pushed it back to the black in its fiscal first quarter, but soaring iron ore and coal costs ate into its profitability and are clouding its earnings recovery prospects. …

Nippon Steel is not alone in contending with high input costs. JFE Steel Corp., Japan’s No. 2 steel maker, on Tuesday also reported its net profit fell 41% from the previous quarter.”

Source: Wall Street Journal, July 28, 2010

Observations:

  • Change in pricing system of iron ore has allowed miners to pass on price increases to steel makers. As many steel makers have fixed prices with customers in medium term contracts, profits are reduced by the increase of raw materials that can not be passed on to customers immediately.
  • Only last month various steel makers warned for steel price reductions because of the threat of overcapacity in the industry. At the same time, warnings for increasing steel price volatility appear to become reality, as long term price contracts are replaced by spot price-based pricing.

Implications:

  • Many competitors of Arcelor Mittal will follow in increasing steel prices. As the construction industry is recovering from the crisis, increasing prices will impact demand heavily, causing output levels to fall and overcapacity to increase further. Therefore, the steel price increase can be expected to be short-lived.
  • Increasing seaborne iron ore prices mainly impact steel makers that are not vertically integrated. Arcelor Mittal is hit less than other Indian producers as they are pursuing upward integration aggressively and are less dependent on seaborne trade from Australia than Nippon Steel and many Chinese companies.

©2010 | Wilfred Visser | thebusinessofmining.com