November 15, 2002	Friday	Ramazan 9, 1423

TOKYO, Nov 14: Japan’s largest steelmaker Nippon Steel Corp and smaller rivals Sumitomo Metal Industries Ltd and Kobe Steel Ltd announced an alliance on Thursday in the latest of a series of tie-ups in the troubled industry.

But the move stopped short of a merger, with the three firms only saying they would explore further integration possibilities following the latest strengthening of links.

“We are not considering a merger in the future. We will not merge but through tie-ups, each company can perform at its best,” Kobe Steel president Koji Mizukoshi told a news conference.

Nippon Steel and Sumitomo Metal said they would take five billion yen (42 million-dollar) stakes in each other, while Kobe Steel will exchange three billion-yen stakes with the other two.

“The trilateral tie-up will help the firms save more than a combined 50 billion yen a year in distribution, raw-material procurement, plant and equipment maintenance, as well as through the stainless business tie-up between Nippon Steel and Sumitomo Metal,” Nippon Steel president Akira Chihara told reporters.

“It will set the stage for us to maintain global competitiveness,” he said.

But the merger of Nippon Steel and Sumitomo Metal’s stainless steel operations, originally announced in June, was put back to October next year from April due to slower than expected progress in the plan.

Chihara said the three-way alliance would lead to a fall in the firms’ combined iron and steelmaking capacity by five million tonnes a year. The hot-rolled steel sheet capacity would drop by four million tons alone.

Sumitomo Metal said it would close by March 2005 a domestic hot rolling mill and associated cold rolling mill in Wakayama, about 450 kilometres southwest of Tokyo.

Nippon Steel and Kobe Steel will instead supply the firm with hot rolled steel and titanium sheet, used in products such as aircraft.

Sumitomo Metal also plans to increase slab supplies to China Steel Corp to 1.8 million tons in the year to March 2006 from 600,000 tons this year and will explore a possible alliance with the Chinese firm.

The three companies said they would look at joint development of new products and Kobe and Sumitomo also plan to work towards sharing distribution and procurement of raw materials.

The trio will set up a study group to investigate even greater links in the future.

The announcement was the latest in a series of tie-ups between Japanese steelmakers amid intense global price competition as customers such as automakers, rush to cut costs, analysts said.

In September, NKK Corp and Kawasaki Steel Corp — Japan’s second and third largest steelmakers — set up a joint holding firm JFE Holdings Inc to strengthen their operations.

“(Thursday’s) move basically leaves two groups in Japan’s steel industry and will likely give steelmakers’ more leverage to negotiate with their clients,” said Yoshiyuki Takano, a steel analyst at Tokai Tokyo Research Centre.

But it remained to be seen if consolidation alone was enough to boost profits, warned Okasan Securities steel analyst Masao Yoshida.

“Now they must prove the new structure is in fact better by producing strong earnings in the future,” he said.

The nation’s total crude steel production last year fell 3.4 per cent to 102.9 million tons.—AFP