Two of the top Japanese steelmakers have agreed to merge, in a move that would form the world's second-biggest producer of steel after ArcelorMittal (NYSE: MT). Nippon Steel, Japan's largest steel manufacturer and its domestic rival Sumitomo Metal Industries intend to merge next year, in a move to become more competitive in areas such as developing new products and technology in the energy and environment-related sectors.
The global steel production is surging driven by emerging countries like China. Global crude steel production hit a record 1,414 million metric tons in 2010, representing a 15 percent increase compared to 2009.
For fiscal 2011, Nippon Steel expects sales of $50.2 billion, up from $43 billion in FY 2010. On the other hand, Sumitomo expects its sales to be $18.38 billion for the current fiscal, up from $15 billion in last fiscal.
India's ArcelorMittal was the world's top steelmaker in 2009, producing 77.5 metric tons, according to the steel association. Nippon Steel ranked fourth, after China's Baoshan Iron & Steel and South Korea's POSCO, while Sumitomo Metal Industries ranked 19th.
"Confronted with the changes in the business environment surrounding the steel industry ... the companies have come to share the understanding that it is crucial to further strengthen their mutual relationship," the companies said in a joint release.
"Global competition in the steel industry is growing more intense, at a more rapid rate and to a greater extent than expected,'' Shoji Muneoka, representative director and president at Nippon Steel, said in a statement. The Japanese steel industry, meanwhile, ‘‘is confronted with drastic changes, such as stagnation of domestic demand, inflation of cost of resources, and the strengthening of the Japanese yen," he said.
Japanese steelmakers have taken a hit, considering weak home demand and overseas due to strong Yen, as well as rising raw materials costs. The recent floods in Australia have made matters worse for the Japanese due to disruption in the coal exports from Australia, contributing to the rising cost of steel production, which is dependent on coking coal. The deal will definitely help both the companies to reduce costs, and expand in the developing economies.
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