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Deal gives Nippon Steel quality edge to fight global giants

New subsidiary Nisshin Steel offers ammunition amid industry shake-up

Kinya Yanagawa, incoming president of Nisshin Steel, speaks with reporters in Tokyo on March 7.

TOKYO -- Nippon Steel & Sumitomo Metal's acquisition of domestic competitor Nisshin Steel will help Japan's leading player further differentiate itself by offering quality products amid a global wave of realignment in the steel industry.

Nippon Steel said Tuesday that its tender offer was successful. It will take a 51% stake and make Nisshin a subsidiary later this month.

Nisshin has "many business issues," acknowledged Kinya Yanagawa, incoming president of the company. "Together with Nippon Steel & Sumitomo Metal, we will find optimal solutions in areas such as cost competitiveness for core product categories."

Nisshin chiefly produces coated, rust-resistant steel sheets used for buildings and automobiles, as well as stainless steel.  It has facilities in North America, Spain and China.

Nippon Steel is committing 300 billion yen ($2.63 billion) to offshore operations over three years through March 2018, all under the banner of global competitiveness. Nippon Steel will rework its international network with Nisshin under its wing, but that will occur as the global industry undergoes yet another transformation.

The global arena

Luxembourg-based ArcelorMittal announced Monday an offer to purchase Italian steelmaker Ilva, which is currently nationalized as part of a bailout package. The international leader, which is double the size of Nippon Steel, also said it will invest an additional 2.3 billion euros ($2.4 billion) to boost the cost competitiveness of Ilva's steel mills. A consortium led by India's JSW Steel is the other bidder for Ilva.

Ternium, another Luxembourg steelmaker, struck a 1.5 billion euro deal in late February to buy a Brazilian steel mill owned by Germany's ThyssenKrupp. In China, it was revealed last year that Baosteel Group will merge with fellow state-run enterprise Wuhan Iron and Steel Group, creating the second-largest global entity after ArcelorMittal.

International players have been scrambling to reorganize amid a market slump between 2015 and mid-2016. Larger steelmakers concerned about the future bought out smaller, weaker rivals. The trend also was spurred by China, where the government oversaw the reshuffling of a domestic industry responsible for producing half of the world's crude steel.

The steel market recovered following the restructuring, acquisitions and supply cuts -- especially in China. For the year ended in December, ArcelorMittal enjoyed its first net profit in five years, a turnaround from the company's largest-ever net loss logged in 2015.

JSW Steel also reports healthy earnings, and the international juggernauts now eye even larger scales through acquisitions.

Nippon Steel is ahead in terms of quality, but it will have to improve further in this area to compete with the likes of ArcelorMittal and Chinese rivals. The Japanese company is introducing Nisshin's technology for making high-value-added alloy-plated steel sheets to production centers in Thailand and elsewhere in Southeast Asia.

"We see an annual earnings improvement of at least 20 billion yen," said Katsuhiro Miyamoto, managing executive officer at Nippon Steel.

ArcelorMittal once tried to acquire Nippon Steel before the Japanese company merged with Sumitomo Metal Industries. The time has come for the all-new Nippon Steel to prove it is not on the defensive.

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