Japan's Nippon Steel may buy Nisshin Steel as supply glut bites

TOKYO: Japan's top steelmaker Nippon Steel & Sumitomo Metal Corp said on Monday it may buy fourth-ranked rival Nisshin Steel, the latest step in a round of industry consolidation amid a global supply glut.

Nippon Steel, which already holds an 8.3 percent stake in Nisshin, said it would make a decision at a board meeting later on Monday.

"We are considering measures to strengthen our collaboration with Nisshin Steel, including possibly making it a subsidiary," the company said in a statement following a report in the Asahi newspaper that it could spend more than 100 billion yen ($826 million) to buy Nisshin.

Nisshin Steel, which has a market capitalisation of 124 billion yen as of Friday, confirmed the potential purchase, pushing its shares up 15 per cent in early trade.

A deal would be the latest in a series of consolidations and plant closures as steel producers worldwide face a slump in prices due to surging Chinese steel exports.

China, which produces half the world's steel, shipped a record 112.4 million tonnes of steel last year as slowing economic growth prompted its mills to export excess steel.

The news also reflects soft domestic demand for construction steel despite a push by Prime Minister Shinzo Abe to reboot an economy plagued by deflation and a shrinking population.

Japan's crude steel production fell 5 per cent in 2015 to its lowest in six years.

Shares in Nippon Steel rose about 2.5 per cent by 0116 GMT, boosted by the potential for cost savings.

"The combined entity will be able to optimize production and shut down at least one blast furnace," Jefferies analyst Thanh Ha Pham said in a report.

Nisshin Steel has two blast furnaces with production capacity of 3.6 million tonnes of crude steel and two electric arc furnaces with a capacity of 800,000 tonnes of stainless crude steel.

Nippon Steel has 14 blast furnaces in Japan, two of which are due to be closed by the end of 2018. The company plans to produce 45.2 million tonnes of crude steel in the current business year ending March 31.

Nippon Steel group and Nisshin each hold about 30 per cent of Japan's stainless steel market, according to industry sources.

Nippon Steel planned to shut down Nisshin's Kure Works in Hiroshima prefecture, Kyodo news agency said, without citing sources.

Courtesy : economictimes