Feb 21, 2011
By: Prince Mathews Thomas/ Forbes India
For Japanese steel giants, forging alliances with their Indian counterparts to establish their presence here has become a crucial survival tool.
Unknown to many, India had a role to play in Japan’s reconstruction in the years after World War II. Indian iron ore fed Japanese steel mills, the backbone for growth in the country’s construction and auto industries. And, till China’s steel industry took off at the turn of the century, more than three-fourth of iron ore exported from India landed in Japan.
Now, Japanese steel companies are setting up shops in India with increasing frequency. By the end of 2010, the top four steel makers from the Land of the Rising Sun — Nippon Steel, JFE Steel, Sumitomo Metals and Kobe Steel — had made their presence in India official. The New Year started with Kobe Steel forming another joint venture, this time with engineering giant Larsen & Toubro in January. Success in India might play a crucial role in keeping these companies profitable. The India focus is part of Japanese steel mills’ attempt to realign themselves as per industry dynamics post the 2008 economic slowdown. While traditional markets such as North America have been replaced by emerging ones in Asia, supply glut, rising costs and dip in home demand has forced Japanese steel companies to look for solutions.
The country’s largest and third-largest steelmakers, Nippon Steel and Sumitomo Metals, announced a merger proposal in February. The merged entity will be the world’s second-largest steelmaker, after ArcelorMittal. The aim of this merger is to have better bargaining power to source iron ore and coal. Japan doesn’t have either of these natural resources and is fully dependent on imports. Though the mammoth scale of the merged entity means cost savings, will it be able to bargain for a better price from the likes of Vale and BHP Billiton who dominate world iron ore trade?
“Being a bigger entity doesn’t necessarily demand pricing power because the producers are equally sizable,” James Wilson, analyst at Royal Bank of Scotland in Perth told Reuters. So, if the new combine and other Japanese steelmakers want to remain competitive in the new world order in the steel industry, they will need new markets and consumers. Enter, the Indian steel industry — soon expected to overtake China as the world’s fastest growing.
By: Prince Mathews Thomas/ Forbes India
For Japanese steel giants, forging alliances with their Indian counterparts to establish their presence here has become a crucial survival tool.
Unknown to many, India had a role to play in Japan’s reconstruction in the years after World War II. Indian iron ore fed Japanese steel mills, the backbone for growth in the country’s construction and auto industries. And, till China’s steel industry took off at the turn of the century, more than three-fourth of iron ore exported from India landed in Japan.
Now, Japanese steel companies are setting up shops in India with increasing frequency. By the end of 2010, the top four steel makers from the Land of the Rising Sun — Nippon Steel, JFE Steel, Sumitomo Metals and Kobe Steel — had made their presence in India official. The New Year started with Kobe Steel forming another joint venture, this time with engineering giant Larsen & Toubro in January. Success in India might play a crucial role in keeping these companies profitable. The India focus is part of Japanese steel mills’ attempt to realign themselves as per industry dynamics post the 2008 economic slowdown. While traditional markets such as North America have been replaced by emerging ones in Asia, supply glut, rising costs and dip in home demand has forced Japanese steel companies to look for solutions.
The country’s largest and third-largest steelmakers, Nippon Steel and Sumitomo Metals, announced a merger proposal in February. The merged entity will be the world’s second-largest steelmaker, after ArcelorMittal. The aim of this merger is to have better bargaining power to source iron ore and coal. Japan doesn’t have either of these natural resources and is fully dependent on imports. Though the mammoth scale of the merged entity means cost savings, will it be able to bargain for a better price from the likes of Vale and BHP Billiton who dominate world iron ore trade?
“Being a bigger entity doesn’t necessarily demand pricing power because the producers are equally sizable,” James Wilson, analyst at Royal Bank of Scotland in Perth told Reuters. So, if the new combine and other Japanese steelmakers want to remain competitive in the new world order in the steel industry, they will need new markets and consumers. Enter, the Indian steel industry — soon expected to overtake China as the world’s fastest growing.
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