IHI and JFE discuss shipbuilding merger

Japanese heavy machinery maker IHI and steelmaker JFE are in discussions to merge their shipbuilding businesses in the face of fierce competition from Asian rivals in China and South Korea.IHI said that there had been discussions but could not pinpoint when a decision on a possible merger might be made. JFE declined to comment. Japanese shipbuilders are finding it increasingly difficult to compete against Chinese and Korean rivals, which have much cheaper production bases.The quality of shipbuilding in China and Korea has also improved.On top of this, neither IHI nor JFE focus on shipbuilding as a core business, making it tougher to win orders over rivals. JFE holds a 50 per cent stake in its shipbuilding subsidiary Universal, and the other 50 per cent is owned by Hitachi Zosen.A merger would help IHI reduce its material costs as steel would be procured directly from JFE.However, JFE may have little to gain, especially if a merger resulted in Hitachi Zosen having a reduced stake and JFE a higher one, an analyst said.'This kind of merger is not the solution for future success,' said Teruhiko Nishimura, an analyst at Crdit Suisse.'The best strategy for Japanese companies is to have low exposure to shipbuilding.'IHI's stock rose 4.7 per cent on Friday morning. However, in the afternoon, both groups' shares pared gains, with JFE closing 0.6 per cent lower at Y5,460 and IHI ending the day just 1.4 per cent higher at Y218.Mr Nishimura said that the best way for Japanese companies to compete in the shipbuilding industry was to have a vertically integrated business model. This would involve making all parts of the ship, in the manner of South Korea's Hyundai Heavy Industries, the world's largest shipbuilder.Another possible way to compete was to focus on engineering and then sell on the technology, Mr Nishimura added.

Source:RamblerNews