Friday, February 25, 2011

Citigroup (C), JPMorgan (JPM) Say Nippon Steel, Sumitomo Merger Cost Effective

Analysts at Citigroup (NYSE:C) and JPMorgan (NYSE:JPM) say the merger between Nippon Steel Corp. and Sumitomo Metal Industries Ltd. could save up to ¥100 billion.

"The integration will create an added cost savings of ¥100 billion over the next three years," said Toshiyuki Johno, a Tokyo-based analyst at Citigroup Inc, adding it may generate ¥2,000 for every metric ton of crude steel produced, based on estimated combined annual output of about 50 million tons.

The deal, which will combine Japan's largest and third-biggest mills, is aimed at gaining leverage over raw material purchasing and prices as costs soar. The likely cost savings compare with about ¥1,600 per ton of steel created from Mittal's takeover of Arcelor in 2006 to create ArcelorMittal (NYSE:MT), Nomura Securities Co. said.

The savings from combining production, cutting costs, unifying procurement and expanding sales will be between ¥75 billion to ¥100 billion, said Yuji Matsumoto, an analyst at Nomura.





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