Nippon Steel to seek growth in US, India after blocked deal

Nippon Steel is poised to expand its operations in the US and India as it hunts for growth and protection from cheap Chinese exports after its bid for US Steel was blocked by the White House, analysts say.

Japan’s top steelmaker, battling declining domestic demand, made the $14.9 billion bid for the US producer in an attempt to grow its footprint in a stronger market. But its hopes of salvaging the deal after President Joe Biden’s rejection on national security grounds are dependent on a lawsuit that is viewed as a long shot.

China, by far the world’s largest steel producer, has flooded the market with near-decade-high export volumes as its struggling property sector weighs on domestic demand, upending the global steel industry and leading Nippon Steel to invest more in raw materials and in production outside its home market.

“China’s over-capacity is likely to continue to place pressure on steel exporters... and heighten the need for Nippon Steel to access jurisdictions with growing domestic demand,” said Kyle Lundin, principal consultant at Wood Mackenzie.

Nippon Steel, the world’s fourth largest steel producer, has a long-term plan of boosting crude steel production capacity to over 100 million metric tonnes a year from about 65 million tonnes at present and lifting profits toward 1 trillion yen ($6.32 billion) a year from a 780 billion yen target in the financial year ending in March.

“To be a ‘truly’ global steel producer, greater production capacity above current state is likely required,” said Wood Mackenzie’s Lundin.

Greater production capacity gives flexibility to cut output in one place and increase it in another where demand is more solid in order to boost margins.