Steel Companies Continue to Look at Consolidation

Nippon Steel and Sumitomo Metal Industries are in talks over an alliance that could speed the realignment of Japan's steel industry.

The talks, which follow a deal between Nippon Steel and Kobe Steel, would consolidate Japan's top steel-makers into two groups.

NKK Corp and Kawasaki Steel, Japan's second and third-largest steelmakers, have agreed to merge next year to create the nation's largest steelmaker. Makoto Kihara, vice-president of Nippon Steel, said: "A three-way tie-up between Nippon Steel, Sumitomo Metal and Kobe Steel is a possibility."

Nippon Steel, Japan's largest steelmaker, will procure semi-finished steel products from Sumitomo Metal, the fourth largest. The two companies will co-operate in cutting production, distribution and procurement costs.

The goal is to finalize an agreement by the end of January. Details have yet to be agreed and there are no plans for an equity exchange.

Nippon Steel and Kobe Steel have already agreed to co-operate in the joint procurement of materials, common use of storage facilities and distribution infrastructure and sharing of some maintenance costs.

This month, NKK, another leading steelmaker, said it was in talks to sell National Steel, its US subsidiary.

The move toward increased consolidation in the world steel industry also was touched upon by the co-chairman of a European-based steel company.

Joseph Kinsch, co-chairman of Arcelor, the company being formed by the merger of three European steel companies, called for more mergers in the industry to encourage economies of scale and lift the sector from a crisis caused by persistently weak prices.

The three companies, Arbed of Luxembourg, Usinor of France, and Aceralia of Spain, will have a combined annual capacity of 45 million metric tons of steel. When the merger is complete Arcelor will be the largest steel company in the world. Despite the size, the new company will only account for around 6 percent of world steel output.

Kinsch said there was "no alternative" for companies in the steel industry to combining their forces so they could organize themselves better in making and selling steel around the world.

When Arcelor becomes fully operational by the end of February, it will have a capacity nearly twice as big as its next two rivals in the industry - Posco of South Korea and Nippon Steel of Japan, both of which have the capability to make roughly 25 million metric tons a year.