According to the World Steel Association, Japan’s largest steel company, Nippon Steel, was ranked the world’s 6th largest steel producer, based on its annual output of 33.4 million tones in 2011, behind POSCO and three major steel companies in China and behind ArcelorMittal, the largest steel producer in the globe. The second largest producer in Japan, JFE, was ranked the world’s 9th largest steel producer with annual production of 29.9 million tonnes in 2011. Sumitomo Metal was the 27th largest producer with an output of 12.71 million tones in 2011.
With the completion of the merger of Nippon Steel and Sumitomo Metal on 1st October 2012, the new company (Nippon Steel & Sumitomo Metal Corporation) will overtake Wuhan Iron and Steel, POSCO, Baosteel Group and Hebei Iron and Steel as the second largest steel producer in the world (based on combined annual output of 46.1 million tonnes in 2011).
World’s 10 largest steel producers based on annual output in 2011
Source: World Steel Association
Up to this stage, there is not much details on the potential benefits of the merger. The only notable targets are achieving 60-70 million tonnes of global production capacity (no time frame given) and realizing synergies of around 150 billion yen (USD1.9 billion) per year approximately three years after the integration.
Nevertheless, from the September 2011 integration document, a few revealing statements are noted below:
· “pursuing greater efficiency in domestic production bases and expanding overseas businesses”
· “make further efforts to reduce costs, and establish cost competitiveness that will allow the Integrated Company to compete more effectively on a global basis”
· “with respect to the growing sectors such as automotive, environment and resources/energy sectors, the Integrated Company will focus on strengthening its capability and on expanding overseas manufacturing and processing bases”
From the above, it is clear that the integrated company will be a competitive force in the global steel market. We can also expect to see more strategic investment moves by the company in other countries, including ASEAN.
In respect of marketing strategy, Nippon Steel and Sumitomo Metal have tried to improve profit margins in recent years by focusing more on high-end products like sheet metal used in auto production or seamless steel pipes used in infrastructure projects. That strategy sets them apart from rivals such as Arcelor Mittal, which focuses more on commodity-grade steel used in construction. However, Korea’s POSCO, which still maintains its high-end products and has been preparing entrance into the quality steel plate market for energy industries, will be a keen competitor.