Magazine article Global Finance

Japanese Steelmakers Merge to Compete

Magazine article Global Finance

Japanese Steelmakers Merge to Compete

Article excerpt

Nippon Steeljapan's largest steelmaker, is acquiring rival Sumitomo Metal Industries to create the world's second largest steel producer, at a time when global competition in the steel industry is putting a premium on size.

The merger, valued at $22.5 billion including debt, was the largest M&A transaction announced worldwide in August and September, according to Thomson Reuters. The new steel giant will be second only to ArcelorMittal, which is based in Luxembourg and is headed by Indian CEO Lakshmi Mittal.

Nippon Steel and Sumitomo Metal plan to realign and strengthen their global network, with an emphasis on emerging market countries, such as China, Brazil, India and Southeast Asian nations. "We will aggressively expand our operations overseas," says Nippon Steel president Shoji Muneoka.

The objective of the merger, according to the "master integration agreement" the companies signed, is to become the best steelmaker with worldleading capabilities by "boosting competitiveness in all areas, including scale, cost, technology and customer service."

Output to Increase

The two steel producers will have a combined output of about 48 million metric tons of steel this year. The new company plans to expand output to 60 million to 70 million metric tons globally in the next few years by accelerating its overseas business development.

Increased scale will give Nippon Steel and Sumitomo Metal - as the new company will be known - increased leverage in negotiating with suppliers of raw materials. Iron ore and coking coal prices have risen significantly in recent years.

The combined company will also have more clout to set steel prices for buyers, including automakers and electronics manufacturers, which are key consumers of high-quality steel. Japanese steelmakers were hit hard by the March 11 earthquake and tsunami, which lowered demand from the country's automakers and resulted in power shortages. …

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