Steel competition

Japan’s top steelmaker Nippon Steel has announced a merger with the country’s third-largest competitor Sumitomo Metal Industries in October next year. The merger is expected to help Nippon Steel, which ranked sixth in the world in crude steel production in 2009, overtake Chinese steelmakers and POSCO of Korea to become the world’s No. 2 steelmaker.

Nippon Steel President Shoji Muneoka said, “The merger is a strategy of aggressive investment in the global market.” He said the merger of the two Japanese steel giants is necessary to make prompt investment in the construction of blast furnaces to meet soaring demand for steel in emerging economies. He also said scaling up his company`s size is an urgent task to increase its negotiating power given the few big companies that dominate raw material markets for iron ore and coal. The two Japanese companies decided to merge to seek synergy effects though they are among the leaders in steel sheets for vehicles. A Japanese expert said, “The purpose of the merger is to beat Korean and Indian rivals.” In this regard, POSCO should raise its guard.

The trend of global steelmakers scaling up their sizes has continued for several years. Mittal Steel of India, now called ArcelorMittal, became the world’s largest steelmaker after acquiring Arcelor of Luxemburg in 2006. At the time, Nippon Steel and POSCO feared that they would be taken over by ArcelorMittal. For its part, the Chinese government took the lead in helping its five steelmakers such as Hebei Iron & Steel and Baoshan Iron & Steel to join the world’s top 10 by enlarging them and closing obsolete facilities.

If Korean steelmakers lag behind their Japanese and Chinese counterparts in the size competition, they will lose their ability to make massive investment. India has surpassed Korea in steel production. By 2020, Indian production of crude steel is expected to surge fivefold from 2009. The Korean steel industry is still being squeezed between competitors in advanced economies and those in developing ones.

POSCO CEO Chung Jun-yang presented his company’s goal of joining the world`s top three steelmakers by scaling up crude steel production to 60 million tons by 2018. Not to be left behind in the competition for enlargement and globalization, POSCO, which created a legend of serving the country by building a steel mill on the coast of Yeongil Bay, should not be complacent despite being Korea’s No. 1 steelmaker. The company should continue to challenge in the global market through the “spirit of facing right” advocated by POSCO founder Park Tae-joon, who said, “If we fail to build a steel mill, all of us shall jump to our deaths into Yeongil Bay on the right side.”