Nippon-Sumitomo merger stirs hope for steel shake-up

Nippon Steel Corp president Shoji Muneoka (left) shakes hands with Sumitomo Metal Industries president Hiroshi Tomono at their joint news conference in Tokyo on Thursday as they announced plans to create the world's No 2 steel-maker.

News of the proposed merger fanned expectations of further consolidation in the fragmented industry, sending Japanese steel-makers' shares surging on Friday.

Shares in Nippon Steel ended 9.1 per cent higher and Sumitomo Metal Industries surged 16.1 per cent in Tokyo, adding almost US$4 billion ($5.1 billion) in combined market value. The Tokyo iron and steel subindex rose 6.1 per cent, suggesting that investors could be expecting more realignment in the crowded Japanese steel industry.

'The whole Japanese steel industry has to restructure ... and these two companies are at the forefront of that restructuring process,' said Goldman Sachs analyst Rajeev Das. 'What we saw ... is the start of a very long one- or two-decade restructuring of the whole industry.'