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More mergers anticipated after Nippon-Sumitomo

More mergers anticipated after Nippon-Sumitomo
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From Japan comes word that Nippon Steel Corporation and Sumitomo Metal Industries are to merge to create the world’s second largest steelmaker.

Shares of both companies surged on the news which increased expectations of further consolidation in the fragmented steel industry.

Over-capacity has long been a problem for the industry, but the last big merger was in 2006 to create the world’s top steelmaker ArcelorMittal.

Japan’s No.1 and No.3 steelmakers are hoping to merge under a holding company in October 2012.

Other firms in the sector also say their shares rise, suggesting investors expect more realignment in the crowded Japanese steel industry.

Goldman Sachs analyst Rajeev Das said: “I think the whole Japanese steel industry has to restructure anyway somewhere down the line and these two companies are at the forefront of that restructuring process”

He called it “The start of a very long one or two decade restructuring of the whole industry.”

China, the world’s largest steel producer, is aiming to bring more than 60 percent of national steel capacity under the control of its top ten producers by 2015, so more mergers are expected there too.