The merger of Nippon Steel Corp. and Sumitomo Metal Industries Ltd. in October 2012 is designed to provide the impetus to make a concerted push into overseas markets.
The new company will be named Nippon Steel & Sumitomo Metal Corp.
Nippon Steel President Shoji Muneoka and Sumitomo Metal Industries CEO Hiroshi Tomono said at a joint Sept. 22 news conference their goal was to create the world's "top comprehensive" steelmaker.
Under the merger plan, new steel works will be set up overseas to increase annual production of crude steel from the current 50 million tons to between 60 million and 70 million tons in "the near future," according to Muneoka.
That would give the new company a solid footing behind Luxembourg-based ArcelorMittal, which is currently the world's largest steelmaker.
The two companies will reorganize their overseas operations, especially in India and Brazil where there is overlap.
Company officials will seek more efficient procurement of raw materials as part of a strategy to raise annual profits to 150 billion yen ($1.9 billion) three years after the merger.
The new company will aggressively make inroads overseas because there is little prospect of large growth in the domestic market.
Damage caused by the March 11 Great East Japan Earthquake also was a factor.
Sumitomo Metal Industries had to temporarily halt operations at its Kashima steel works due to damage from the earthquake. Although operations resumed about six weeks later, the company posted a loss of 62 billion yen for the fiscal year that ended in March.
Combining the names of the two companies is an attempt to avoid internal confrontation and to promote a quicker move to new management efforts.
For the fiscal year ending in March, Nippon Steel recorded sales about three times those of Sumitomo Metal Industries.
"Both companies have a history," Muneoka said. "We came up with a name that would be familiar with our clients and the public."
Tomono also stressed that the equal merger had led to a deepening of ties between the two companies.
At the same time, competition in the global market is intensifying.
ArcelorMittal, Posco of South Korea and Chinese steelmakers have all increased profits, due in part to the rapid economic growth of newly emerging nations. Major steelmakers are also aggressively continuing to invest in plants.
However, there are signs of flatter growth in some newly emerging economies.
Nippon Steel provides about 30 percent of the capital in Brazilian steelmaker Usiminas. The appreciation of the Brazilian real this summer has hurt the company's performance and Nippon Steel executives said they could not rely on any contribution from the Brazilian steelmaker on the parent company's balance sheet.
Another negative factor for Japanese steelmakers is the continued high prices for iron ore and coal.
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