TOKYO, Jan 7 (Reuters) – Nippon Steel (5401.T) is poised to expand its operations in the U.S. and India as it hunts for growth and protection from cheap Chinese exports after its bid for U.S. Steel (X.N) was blocked by the White House, analysts say.
Japan’s top steelmaker, battling declining domestic demand, made the $14.9 billion bid for the U.S. producer in an attempt to grow its footprint in a stronger market. But its hopes of salvaging the deal after President Joe Biden’s rejection on national security grounds are dependent on a lawsuit that is viewed as a long-shot.
China, by far the world’s largest steel producer, has flooded the market with near-decade high export volumes as its struggling property sector weighs on domestic demand, upending the global steel industry and leading Nippon Steel to invest more in raw materials and in production outside its home market.
“China’s over-capacity is likely to continue to place pressure on steel exporters… and heighten the need for Nippon Steel to access jurisdictions with growing domestic demand,” said Kyle Lundin, principal consultant at Wood Mackenzie.
Nippon Steel, the world’s fourth-largest steel producer, has a long-term plan of boosting crude steel production capacity to over 100 million metric tons a year from about 65 million tons at present and lifting profits toward 1 trillion yen ($6.32 billion) a year from a 780 billion yen target in the financial year ending in March.
Nippon Steel has operated in the country since the 1980s and has a number of U.S. assets, including its prime facility, a joint venture with ArcelorMittal (MT.LU) in Calvert, Alabama, purchased a decade ago.
“While domestic demand in the U.S. is increasing, its production capacity is smaller than that of domestic demand, making it a net importer,” said Ryunosuke Shibata, an analyst at SBI Securities in Tokyo.
The Calvert plant produces steel sheets using semi-finished products secured at home and overseas and the joint venture is investing nearly $800 million in an electric arc furnace of 1.5 million tons of annual capacity to reduce dependence on third-party supplies.
U.S. Steel, founded in 1901 by business icons Andrew Carnegie, J.P. Morgan and Charles Schwab, has a heavily unionised workforce and a brand once seen as a symbol of the country’s industrial might.
India’s domestic steel demand is seen growing 8.5% this year, according to the World Steel Association, versus a 1.2% rise in global consumption.
China was India’s top steel supplier in April-November last year, the latest data available, with imports reaching an all-time high of nearly 2 million tons, a 23% increase year-on-year, government data showed.
In India, Nippon Steel has had a joint venture with ArcelorMittal since 2019, but it is a smaller player compared to Tata Steel (TISC.NS) and JSW Steel (JSTL.NS), according to Lakshmanan R, senior research analyst at CreditSights Singapore.
To narrow the gap, the joint venture, India’s fourth-largest steelmaker, plans to increase steel production capacity to 15 million tons per year by the end of 2026 from 9 million tons annually now.
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