METI to Back Merger of Nippon Steel, Sumitomo Metals

Ministry of Economy, Trade and Industry submitted comment on pending merger plan of Nippon Steel and Sumitomo Metal Industries on Thursday to back the merger. The major steel makers applied to METI for support under law on special measures for industrial revitalization in July after they sought screening by Japan Fair Trade Commission. METI seeks the competition authority’s approval for the positive attempt citing needed international competitiveness without hampering domestic competition. METI strongly supports the merger when Fair Trade Commission will conclude the judgment on support under law on special measures for industrial revitalization as competition screening results.

The steel makers submitted the merger plan to Fair Trade Commission on May 31. The commission required additional document to the makers for second stage of the screening on June 30. The commission will conclude the screening 90 days after they send the additional information.

The makers also submitted consolidation plan to METI for support under law on special measures for industrial revitalization, which allows the support in the domestic sales scale of the makers. METI sends comment on the support to Fair Trade Commission and the commission checks the reasonability.

The makers plan to merge on October 1, 2012 after they sign merger agreement in April 2012 subject to screening processes by competition authorities in the world.

In comment to Fair Trade Commission, METI emphasized steel makers’ competition gets severer at home and abroad when steel users shift the production from domestic plants to offshore plants. METI appealed the combined company will contribute to steel users through the better cost competitiveness and better ability in research and development when steel makers need larger resources for operation and investment for better international competitiveness under severer market condition.

METI is sure with the merger, Japanese steel market is still competitive market after METI conducted hearing from competitor steel makers and steel users on the merger plan. METI expects the users’ buying power is still strong under competition with JFE Steel and other rival domestic steel makers even after the merger while domestic users consume imported steel. METI recognizes many of steel users with global operations expect the combined steel makers will improve technology and products development ability while some steel users expressed concern on fewer domestic players.

METI also analyzed the makers’ market share for certain products and the impact on the user industries. METI found no problem when users have strong bargaining power and steel is in competition with other materials in construction market and users also have strong pricing power and use import steel more in automobile industry. METI sees competitor steel maker has larger market share and shipbuilders can use imported steel in shipbuilding industry while competitor has more than 30% share in gas piping.