Proposed Merger Could Encourage Japan Stainless Consolidation

Japanese stainless steel industry starts consolidation 8 years after start of Nippon Steel & Sumikin Stainless Steel (NSSC), which was established by combining stainless units of Nippon Steel and Sumitomo Metal Industries. The new action of Nisshin Steel and Nippon Metal Industry would encourage Japanese stainless industry to regain international presence while domestic makers struggle in unprofitable market with shrinking domestic demand.

Nisshin Steel and Nippon Metal Industry try to improve the cash flow for investment to grow international market. The attempt could be a step for identical entity while failed attempt of merger attempt of Nisshin Steel and NSSC would be the best answer. However, the merger of Nisshin Steel and Nippon Metal Industry could develop new frontier in Japanese stainless industry.

Consolidation mood occurred in Japanese stainless industry when they recognized 2006 issue or potential oversupply situation in global stainless market due to aggressive expansion by Chinese players. However, they got through the situation thanks to good profitable business under growing world demand. The potential oversupply was intact and the worst scenario was realized after Lehman shock.

Japanese stainless industry kept oversupply situation in past 8 years when world stainless market has changed drastically. China became world largest stainless steel making country in 2006 topping Japan. Chinese stainless production reached 11.13 million tonnes in 2010, which represented a third of world production.

Asian majors including POSCO of South Korea and Taiyuan Iron and Steel of China try to get hegemony in world stainless market. Such world majors have annual 3 million tonnes of output capacity. Acerinox of Spain, in which Nisshin Steel certain share, has annual 3.1 million tonnes of output capacity. Japanese stainless makers’ presence got smaller while world majors got larger and larger.

Nisshin Steel and Nippon Metal Industry share crisis mentality as without any positive actions, Japanese stainless industry could collapse. Nisshin Steel increased concern if offshore maker could acquire Nippon Metal Industry with partnership with Nisshin Steel. A source of former employee of Nippon Metal Industry said POSCO offered such proposal to Nippon Metal Industry before.

The merger attempt could be too late for strong Japanese stainless industry. However, Nissin Steel and Nippon Metal Industry still try to pave the way for global player in stainless industry. With the merger, Nisshin Steel can utilize steckel mill with 5 feet width at Kinuuwa plant of Nippon Metal Industry when Nisshin Steel’s Shunan plant has no hot rolling operation and Nisshin Steel has only 4 feet wide hot strip operation.

The combined company could focus the steel making operation into Shunan plant in future when Kinuura’s steel making operation is old. The combined company seeks synergy by utilizing strong parts of both companies including world top class of rolling technology of Nippon Metal Industry.