Mega steelmakers' merger to have major impact on Indian firms

The proposed merger between Nippon Steel Corp and Sumitomo Metal Industries, Japan’s largest and third largest steel makers, is likely to have major ramifications for Indian companies.

While Tata Steel has lined up a Rs 2,400-crore project with Nippon Steel for producing auto-grade steel, Sumitomo is in discussions with Delhi-based Bhushan Steel for an integrated steel plant. Both companies, however, said they did not foresee a conflict of interest.

“Our project is for a specific product line,” a Tata Steel executive said. Tata Steel’s project is aimed at capturing the growing demand for high-tensile auto-grade steel in India and will be an equal joint venture. The project will come up in Jamshedpur and is expected to commence production in 2013.

Bhushan’s discussions with Sumitomo, on the other hand, are for a six-million tonne integrated steel plant in Bengal. Sumitomo is expected to pick up a 26-40 per cent stake in the project, depending on the valuation.

“There has been no communication from Sumitomo’s side on this. But Tata Steel’s project is a cold rolling complex, and our discussions are for a steel plant. Even though we are competitors, the projects are different,” Bhushan Steel managing director Neeraj Singal said.

The two domestic companies also don’t foresee the Nippon-Sumitomo deal materialising in the near term.

The deal, worth $24.5 billion, to create the world’s second largest steel maker with a capacity of 47.8 million tonnes will be completed by October 2012. Singal also pointed out that Nippon and Sumitomo already had close ties.

The deal, aimed at boosting margins through better bargaining power for raw material supplies, is likely to have some impact on NMDC, India’s largest iron ore producer.