JFE takes control of shipbuilder

JFE, the world’s third-largest steelmaker, moved a step closer to creating Japan’s biggest shipbuilder on Thursday by agreeing to buy control of its joint venture with Hitachi Zosen for Y35bn ($339m).

The Japanese steelmaker is also in talks to absorb the shipbuilding arm of IHI, the struggling Japanese heavy-machinery group.

Combining the two operations would create the world’s sixth-biggest shipbuilder with annual sales of Y345bn and production of 3m tonnes.

Japanese ship output hit a three-decade high last year but the industry faces tough competition from larger South Korean and Chinese producers, which are rapidly increasing capacity.

Shipbuilders are JFE’s biggest customers outside the car industry but analysts said the benefits of vertical integration would likely be small, since the biggest threat to steelmakers’ profits comes from rising input prices rather than lack of demand.

JFE’s stake in Universal Shipbuilding, its joint venture with Hitachi Zosen will rise to 85 per cent from 50 per cent. JFE said it was considering an approach from IHI to merge their shipbuilding businesses.

Recent earnings downgrades from steelmakers have highlighted the impact of higher raw materials costs. Nippon Steel, Japan’s top producer, said on Thursday it was bracing for its first earnings decline in four years.

It cut its net profit forecast for the year to March 31 by 5 per cent to Y347bn. That would mark a 1 per cent decline from a year earlier.

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