Tokyo: Nippon Steel Corporation and Mittal Steel will invest a combined $260 million to double the capacity of their auto-use steel sheet plant in the US, the leading financial newspaper in Japan Nihon Keizai Shimbun said on Thursday.
Nippon Steel said it was discussing a plan to boost production capacity at its US plant but was not in negotiations with Mittal.
The report of deepening cooperation between the two firms pushed up shares in Nippon Steel by nearly 1.5 per cent in early morning trade, but the stock lost steam after Nippon Steel's denial and were up 0.2 per cent at 492 yen in the early afternoon.
Nippon Steel has been expected to soon boost output at I/N Kote, an equally-owned joint venture between Nippon Steel and Mittal in the US, in view of an acute shortage of auto-use steel and large production expansion plans by Japanese automakers there.
"It's (the US output capacity) one of our urgent issues," Shoji Muneoka, executive vice president of Nippon Steel recently told Reuters. "We certainly are raising capacity as needed, when necessary."
The business daily said a new production line at I/N Kote would begin operations in 2008, lifting the plant's annual production capacity to 1 million tonnes from 500,000 tonnes now.
A Nippon Steel source said doubling production capacity was only one option being considered, and nothing has been decided.
Shares in Nippon Steel have been on a steady up trend since early this year on foreign buying amid speculation that a wave of consolidation in the steel sector will hit Japan next year.
Europe's Arcelor last month agreed to a $32.3 billion takeover bid from Mittal, creating a world giant three times larger than Nippon Steel and sparking speculation that Nippon Steel and other Japanese giants could become Mittal's next takeover target.
"The market is particularly sensitive to the issue of Nippon Steel's and Mittal's relationship ahead of a planned change in Japan's corporate law making foreign takeover easier," said Norihiro Fujito, a strategist at Mitsubishi UFJ Securities.
"The stock is beginning to add a M&A-related premium." Nippon Steel shares have risen 17 per cent this year, compared with a 9.6 per cent gain in the sector index and a one per cent fall in the benchmark Nikkei share average.
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