Mitsui, Nippon Steel seek closer steel-trading partnership

27 Mar 2017

Nippon Steel & Sumitomo Metal and Mitsui & Co. will deepen their steel-trading partnership, seeking a sharper edge as excess supply from China and high raw material prices eat away at margins.

Mitsui plans to increase its stake in Nippon Steel’s trading company, Nippon Steel & Sumikin Bussan, as early as fiscal 2017. The companies are hoping that consolidation will better enable them to endure fierce competition against steel from nonferrous and composite materials.

Mitsui currently owns roughly 11% of Nippon Steel & Sumikin Bussan, which could could become an equity-method affiliate if the trading house’s stake increases to 20% or more. A 10-point ownership increase would entail an estimated 15 billion yen ($134 million) in fresh investment.

For Nippon Steel & Sumikin Bussan, Mitsui’s broad list of energy and infrastructure clients could lead to sales growth. Mitsui sees the backing of Nippon Steel’s supply capacity and strength in product development as a means of bolstering relations with its own customers.

Mitsui already has its own steel-trading units and supplies steel products for the energy sector such as oil well pipes as a mainline business. As its partnership with Nippon Steel deepens, both sides will need to sort out overlapping businesses and divided up roles. The possibility of moves by Mitsui rival Sumitomo Corp., which also has a close relationship with Nippon Steel, will be something to watch going forward.

The steel industry faces a tough business environment. Crude steel production in Japan last year fell to its lowest point since 2010, the bottom following the global financial crisis. Price increases have not kept up with rising costs for raw materials, and China’s excess production capacity also weighs heavily.

As steel demand cooled off in the early 2000s, consolidation on the distribution side in Japan occurred with trading houses Itochu and Marubeni combining their steel divisions. Mitsubishi Corp. and Nissho Iwai also spun off their steel business and formed Metal One.

Source – asia.nikkei.com