JFE’s Shipbuilder May Seek More Mergers as Japan Yards Lose Out to China

JFE Holdings Inc. (5411)’s shipbuilding unit, in talks to merge with IHI Marine United Inc., may invite other Japanese companies to join the enlarged group to help it compete with South Korean and Chinese rivals.

“A combined unit would boost competitiveness” of all companies that joined with IHI Marine and Universal Shipbuilding Corp., President Shinjiro Mishima said, adding that he would welcome more Japanese yards.

Japan needs to form a shipbuilder with annual sales of about 500 billion yen ($6.1 billion), more than double Universal’s, to pare costs and speed investment in energy-saving ships, he said. Japan is now the third-largest shipbuilder, behind China and South Korea.

Japanese shipbuilders have struggled as rising steel prices and sustained gains in the yen that reached a 15-year high in November, made domestic-built ships more expensive than Korean vessels. JFE and IHI Corp. (7013) started talks in 2008 to combine their shipbuilding units.

Mishima said Universal and IHI Marine United need more time to assess their merger. In November, 2009, he said that plunging demand meant further assessment of the benefits of integration was needed.

“We cannot read the outlook of demand,” he said yesterday in the interview at the company’s headquarters in Kawasaki city, near Tokyo, without specifying a decision deadline.

Combined Sales

Universal Shipbuilding was created in 2002 when NKK Corp., now a part of JFE, and Hitachi Zosen merged their shipbuilding operations.

Universal and IHI Marine United have estimated combined sales to reach 400 billion yen for the year ending March 31. South Korea’s Hyundai Heavy Industries Co. had sales of 11.3 trillion won ($10 billion) for shipbuilding and offshore last year.

Universal intends to continue buying steel from Japanese mills, predominately its parent JFE, rather than switching to cheaper imports, the president said.

Steel accounts for about 30 percent of the cost of building a ship, making shipbuilders more vulnerable to fluctuations in steel prices than carmakers and consumer electronics companies, Mishima said.

Nippon Steel Corp. (5401), Japan’s largest steelmaker, will ask customers to pay 20,000 yen a ton more from April as it seeks to pass on the increased costs of iron ore and coking coal, key raw materials used to make steel, Executive Vice President Kozo Uchida said Feb. 28. That’s an increase of about 25 percent based on the average steel prices estimated in January by the steelmaker for the six months ending March 31.

Japan lost its decades-long title as the world’s biggest shipbuilder to South Korea in 2000 before falling behind China into third place in 2009. Last year, China took the No. 1 spot with a 38 percent share, ahead of South Korea’s 33 percent and Japan’s 21 percent, according to data from Lloyd’s Register.

To contact the reporter on this story: Masumi Suga in Tokyo at msuga@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs in Sydney at ahobbs4@bloomberg.net.

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