Nippon Steel Corporation and Sumitomo Metal Industries, Ltd. jointly announced that they have agreed to discuss a merger of the two companies (“business integration”), targeted for October 1, 2012. Once the merger is complete the combination of the two companies, with total steel production capabilities of 47,800,000 metric tons, will produce the second largest steel company in the world behind ArcelorMittal.

The Companies originally formed an alliance in 2002, helping each other in areas such as the mutual supply of semi-finished steel products and business consolidation of their respective subsidiaries. According to the Nippon Steel press release they now want more solidarity (a merger) for dealing with: “(i) Expansion of steel demand all over the world, especially in emerging countries; (ii) Further increase in the need for higher quality and technology arising out of the augmentation of new business areas of steel application, such as those in energy and environment-related sectors; (iii) Commissioning of newly constructed steel mills in various countries and intensified competition in the steel supply markets globally; and (iv) Globalization of steel consuming industries and rapid and drastic changes in the markets for procuring raw materials for steel.”

The Companies’ global system of production, marketing and sales, and R&D activities, would “cover not only Japan, the United States, and European nations, but also China, ASEAN member states, India, Central and South American countries, Middle and Near East countries, and African countries where economic growth is expected.”

The Companies also want to produce synergies and strengthen its competitiveness in the non-steel segments.

Nippon Steel said the plan is to have a merger agreement by April 2012 and hold shareholders’ meetings no later than June 2012 to approve the merger agreement and to discuss company name, headquarters, share allotment, etc.

Nippon Steel’s finances for 2010 show net sales of 4,100.0 billion yen, with 34,480,000 metric tons of crude steel produced. Sumitomo Metal’s finances for 2010 show net sales of 1,500.0 billion yen and produced 13,320,000 metric tons of crude steel. (Source: Nippon Steel)