Tokyo: Nippon Steel Corp plans to roughly double its stake in Nisshin Steel Co to up to 20% to strengthen the group’s stainless steel business, the Asahi newspaper reported on Thursday.
Shares of Nisshin, which expects a second straight year of losses due to weak demand and falls in nickel and chrome prices, jumped as much as 10% following the report, while Nippon Steel shares rose nearly 5%.
Nippon Steel, the world’s No.2 steelmaker, and Nisshin, Japan’s fifth biggest and owned 9% by Nippon, both said nothing had been decided on strengthening their capital ties.
A Nisshin source, who was not authorised to speak publicly on the matter, said various talks were underway with Nippon Steel on ways to strengthen their alliance, including capital ties, but no decisions have been made.
Stainless steel makers have been suffering from tough market conditions because of volatile prices of nickel and chrome, the raw materials for stainless steel, and rising competition.
A collapse in demand amid the recession for car parts and household items like kitchen sinks and roofs forced many global players to suffer losses last year, though a recent recovery in demand and nickel prices have prompted South Korea’s Posco, one of the region’s biggest players along with China’s Baosteel, to raise output and prices.
The Asahi reported on Thursday that Nippon Steel would restructure and consolidate the group’s stainless production facilities after raising its stake in Nisshin.
Nisshin will also take a stake in Japan’s top stainless steel producer Nippon Steel & Sumikin Stainless Steel Corp (NSSC), a joint venture between Nippon Steel and Sumitomo Metal Industries Ltd, the Asahi said.
Market watchers have been speculating for years that Nippon Steel will likely raise its stake in Nisshin, a relatively small player in the global stainless steel market.
Hit by a plunge in demand and steep falls in nickel and chrome prices, Nisshin expects to post a second consecutive year of pretax losses this financial year. Its stock is trading at a price-to-book ratio of 0.67, considerably lower than its peers due to earnings concerns.