Japan's Nippon Steel, Sumitomo Metal to merge in 2012

Top Japanese stell mills to merge. Two of Japan's top steel mills have announced plans for a multi-billion-dollar merger to create the world's second-largest steel producer. Nippon Steel, Japan's largest producer, and No 3 player Sumitomo Metal Industries unveiled plans for the merger in Tokyo late yesterday. The two steel giants already share production for some steel products. It could be Japan's largest ever non-bank takeover. Steelmakers have been hit hard by high iron ore prices in recent times amid rising demand from China and a shift by ore producers Rio Tinto, BHP Billiton and Vale from contract to spot pricing. The mill's customers, meanwhile, have held producers to fixed prices, squeezing the steel mills' margins. "We see a radical change in business environment surrounding the Japanese steel industry," Nippon Steel president Shoji Muneoka said yesterday in announcing the proposal. The two companies plan to merge by October next year and their union will bring them closer in size to global leader Arcelor Mittal, based in Luxembourg. The two companies said they hoped to jointly exploit opportunities in fast growing emerging markets while strengthening their domestic bases. With automakers, electronic device makers and other major clients accelerating overseas business, and with steel demand soaring in the fast-growing emerging markets, the firms agree that they need to tap overseas demand if they are to grow in the future. The move is the first large-scale restructuring of the steel industry since 2002, when JFE Holdings was established via a merger between Kawasaki Steel and NKK. Katsuya Okada, the secretary general of Japan's ruling party and a former foreign minister, said the government welcomed the move and believed consolidation in the Japanese steel industry and some other sectors was needed amid intensifying global competition.