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Tokyo - Japanese steel shares soared on Friday after the country's biggest steelmaker Nippon Steel and rival Sumitomo Metal Industries unveiled a merger plan to create the world's second-largest steel firm.
Nippon Steel and third-ranked Sumitomo Metal announced Thursday that they plan to achieve the tie-up by 2012, which would create a steel giant second only to the world's biggest ArcelorMittal, based in Luxembourg.
A merger of the two firms, which formed an alliance in 2002, would be the first in the Japanese steel industry since the creation of JFE Holdings around a decade ago.
Sumitomo Metal shares jumped 16% to ¥224 in Friday morning trade, with Nippon Steel also rising nearly 10% to ¥313.
Their domestic rivals also got a boost, with Japan's number two firm JFE Holdings up 2.38% to 2 749 and Kobe Steel 3.70% higher to ¥224.
Through the merger, the companies are expected to cut costs in the face of rising commodity prices and be in a better position against competition from the likes of China's Baosteel and South Korea's Posco.
Steelmakers have found themselves increasingly squeezed by rising input costs and growing pressure from customers such as automakers to lower prices.
Global competition in the steel industry has intensified in recent years with demand spurred by emerging economies such as China that are undertaking massive construction, infrastructure and manufacturing projects.
Japanese automakers, electronics makers and other companies have also sought to expand production in foreign markets in search of growth, stronger consumer demand and to avoid foreign exchange risks.
Nippon Steel expects sales of ¥4.1 trillion and to produce 34.7 million tonnes of crude steel in the year to March, while Sumitomo Metal on Friday said it expects sales of ¥1.4 trillion with 13.5 million tonnes.
