International Steel Mills

Japan Steelmakers See Consolidation as Answer to Industry Challenges

Written by Sandy Williams

Japan’s number one steelmaker Nippon Steel & Sumitomo Metal Corp (NSSMC) announced it has begun discussions to buy fourth-ranked rival Nisshin Steel. The target date for the proposed acquisition is March 2017.

The global imbalance of steel supply and demand led Nisshan to consider rationalizing its iron and steel making by shutting down operations at the Kure steelworks No.2 blast furnace and sourcing all of its steel slabs from NSSMC. As a result of conversations on the proposal, the companies decided the best course of action was to make Nisshin a subsidiary of NSSMC.

Excess capacity in China has resulted in steel exports of over 100 million tons per year that have brought down pricing in East Asia. Although China plans to cut production, it will take time that NSSMC and Nisshin cannot afford in the face of deteriorating earnings. Steel consumption in Japan is also declining, due in part to a decreasing population.

When Nippon and Sumitomo merged, it resulted in improve profitability and financial strength. NSSMC and Nisshin hope that by pooling their management resources, it will “create a synergy effect in order to maintain a firm business and profit foundation in this severe business environment.”

The alliance would enhance cost-competitiveness through a stronger product mix, improved technologies, expanded raw material sourcing, and improved customer service.

The financial terms of the acquisition are yet to be decided. NSSMC shares in Nisshin would be in the range of 51 to 66 percent with Nisshin Steel continuing as a listed company after becoming a subsidiary of NSSMC.

Currently Nisshin has two blast furnaces with a capacity of 3.6 million tonnes of crude steel and two electric arc furnaces with a combined capacity for 800,000 tonnes of stainless crude steel. NSSMC has 14 blast furnaces in Japan with two slated for closure by late 2018. NSSMC expects its crude steel production to total 45.2 million tonnes for FY 2015, ending March 31.

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