Japan Steelmakers Shares Jump on Nippon Steel, Sumitomo Merger

Feb. 4 (Bloomberg) -- Steelmakers in Japan rose after Nippon Steel Corp. and Sumitomo Metal Industries Ltd. said they plan to combine to cut costs in what may be the country’s biggest non-bank takeover.

Nippon Steel, Japan’s largest steelmaker, leapt as much as 14 percent to 328 yen, the biggest gain since October 2008, and traded at 316 yen at 1 p.m. in Tokyo. Sumitomo Metal Industries also had its biggest advance in more than two years, gaining as much as 22 percent and trading up 18 percent at 227 yen at 1 p.m.

The steelmakers, which haven’t outlined terms of the transaction, pushed the 35-member Topix Iron & Steel Index to its biggest gain since April 2009. Godo Steel Ltd. had the third-biggest advance, rising 9.5 percent. Osaka Steel Co., 60 percent owned by Nippon Steel, was the fourth-biggest gainer on the index, rising 9.5 percent. Kyoei Steel Ltd., 25 percent owned by Sumitomo Metal, rose 8.5 percent.

The combination of the two companies will benefit “the wider steel industry by helping to increase pricing and margins,” Goldman Sachs Group Inc. analysts Rajeev Das and Nana Hasegawa said today in a report.

Japan’s largest and third-biggest steelmakers said yesterday they plan to combine to gain leverage over raw-material purchases and pricing of the metal as costs soar. Rising costs for iron ore and coking coal forced Nippon Steel and Sumitomo Metal to cut full-year earnings forecasts in the past week.

A combination of the two producers would form the world’s second-largest steelmaker, based on output of 47.8 million metric tons in 2010, Sumitomo Metal Industries President Hiroshi Tomono said at a press briefing yesterday.

To contact the reporter on this story: Stuart Biggs in Tokyo at sbiggs3@bloomberg.net.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.