Aug. 30 (Bloomberg) -- Posco, Asia's third-biggest steelmaker, and Japan's Nissan Motor Co. will build a processing plant in Kawasaki to make automotive and stainless steel.

The factory, Posco's third in the country, will have capacity of 120,000 tons and be completed next May, Ko Min Jin, a spokeswoman for Pohang, South Korea-based company, said today. The venture is ``to secure a stable supply of steel,'' said Kana Minamitate, a Nissan spokeswoman. ``Boosting negotiating power with Japanese steelmakers is not the goal.''

Posco sells about a quarter of its output outside its home market, and has been expanding operations overseas to benefit from rising demand, targeting new factories in India and Mexico. Nissan halted output at three of its Japanese plants for five days in November 2004 because it didn't have enough steel.

``It's a good news for Posco,'' said Shin Yoon Shik, a steel analyst with Meritz Securities Co. ``The plan signals that the quality of Posco's products is recognized by Japanese automakers, which have higher standards than Korean companies.''

Posco said in December last year it will spend about $400 million by 2010 to increase the number of processing plants overseas to 40 from 14. Japan is the world's third-largest auto market behind the U.S. and China.

Shareholding Structure

The new factory, which will use hot-rolled steel from Posco's South Korean plants, is part of a joint venture established last year in which Posco holds a 69 percent stake, said the steelmaker's Ko. Nissan's Pauline Kee, another spokeswoman for the carmaker, put Posco's shareholding at about 70 percent, with the balance held by Nissan Trading Co., one of the company's wholly-owned units.

The venture would help the Korean steelmaker gain a further foothold in the Japanese market, which is relatively closed to foreigners, Meritz's Shin said. The company, which has its other Japanese plants in Osaka and Nagoya, is the world's fourth- biggest steelmaker by crude steel output.

``It's going to help Posco to increase sales through the venture,'' said Atsushi Kawai, a senior analyst at Mizuho Investors Securities Co. in Tokyo, who has a ``neutral'' rating on Nissan.

The carmaker, which has a plant in Yokosuka, south of Kawasaki, has been revamping its line-up and introducing new models this year in a bid to stem a decline in sales in Japan. The Tokyo-based company's domestic vehicle sales, including minicars, dropped 9 percent in the first seven months of 2007 to 452,027, according to the Japan Automobile Dealers Association.

Posco gained 0.7 percent to close at 558,000 won in Seoul, rising for a fourth straight session as the benchmark Kospi Index climbed 0.9 percent. Nissan fell 0.7 percent to end at 1,081 yen on the Tokyo Stock Exchange.

Nissan's initiative with Posco comes as Japan's passenger car ownership rate has started to decline for the first time in more than three decades. Japanese households owned an average of 1.107 cars as of March 31, compared with 1.112 a year earlier, the Automobile Inspection & Registration Information Association said Aug. 9.

To contact the reporters on this story: Sung Woo Park in Seoul at Spark47@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

Last Updated: August 30, 2007 05:09 EDT