Japan's steel industry will set off a wave of mergers

Nippon Steel Corporation and Sumitomo Metal Industries, two large steel companies that are separated from Japan's first and third places, announced that they are planning to complete the merger by October 2012. The combined new company's annual steel output is about 48 million tons, making it the second largest steel company in the world after the European Luxembourg ArcelorMittal.

As the merger of the two companies into a large-scale merger of the steel industry in the past 10 years, it will definitely change the pattern of Japan's domestic steel industry. In order to cope with the shrinking domestic market and fierce market competition abroad, it is not excluded that other steel companies will regroup. The Japanese steel industry is likely to set off a new wave of mergers.

In the absence of any warning, the merger of Japan’s Nippon Steel and Sumikin has a profound background. It is summarized in three ways:

First, Japanese steel companies continue to decline in global rankings. In recent years, ArcelorMittal has become the world's largest steel company through mergers and acquisitions. The merger and acquisition of China's steel industry is also very active, and its scale continues to expand. At present, among the top ten steel companies in the world, China occupies three (Hebei Iron and Steel Group Co., Ltd., Baosteel Group and Wuhan Iron and Steel Group), ranking second, third and fourth, with annual output exceeding 30 million tons. The new steel company's crude steel output in 2009, which has been the world's leading steel manufacturer for decades, has fallen to sixth place.

The second is the pressure to continue rising raw material prices. With the high prices of coal, iron ore and other steel raw materials, especially the iron ore products of Rio Tinto, BHP Billiton and Vale account for 70% of the international market, the price negotiation ability is very strong, plus the emerging countries on iron ore. The increase in demand for stone has increased the pressure on iron ore prices. The pressure on Japanese steel companies, which rely mainly on imports of raw materials, can be imagined.

Third, the fierce competition of steel companies in emerging countries has forced Japanese steel companies to accelerate their merger. As the domestic steel market is shrinking, Nippon Steel, which once ranked first in the world, was overtaken by South Korea's Pohang Steel in 1998, fell to third place in 2006, fell to sixth place in 2009, and China Baosteel Group from 2006. The sixth place jumped to the third place, indicating that the steel companies in emerging countries are developing very rapidly, and Japanese companies are facing increasingly fierce competition in the international market.

Therefore, Nippon Steel and Suginjin believe that only the road to merger will have a foothold. By reorganizing both domestic and foreign production bases, it is possible to establish a global production and sales network, reduce duplication of investment and improve efficiency. Can actively respond to the growing demand of China, India and other markets.

The combined steel production of the two companies accounts for about 40% of Japan's domestic production, and it needs to be reviewed and approved by the Fair Trade Commission. Whether it will be adopted will become the focus of the future. The Japanese government gave a positive evaluation and welcomed the merger of Nippon Steel and Sumitomo Metal Industries. The Ministry of Economy, Trade and Industry of Japan has decided to submit an “Amendment to the Industrial Revitalization Law” to Congress to promote rapid review and facilitation of business mergers. The bill can also effectively reduce the tax burden of corporate restructuring, and the merger of Nippon Steel and Living Gold may become the first beneficiary of the bill.

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