JFE and IHI in merger talks

JFE Holdings Inc. and IHI Corp. are in talks to create Japan’s biggest shipbuilding company to compete against South Korean and Chinese yards. “We’re in discussions with JFE about shipbuilding operations,” said Keiichi Sakamoto, a Tokyo-based IHI spokesman. “Details have yet to be decided.” JFE, Japan’s second-biggest steelmaker, declined to comment. Local sources claim the Tokyo-based companies could merge their shipbuilding units before the end of this year. The new company would have sales of 345 billion yen ($3.1 billion), becoming the world’s sixth-biggest shipyard behind South Korean and Chinese rivals. IHI, facing a delisting from the Tokyo Stock Exchange for overstating earnings, counts on shipbuilding for about 14 % of total sales.

Unofficial reports say that IHI’s shipbuilding unit IHI Marine United Inc. will be merged into JFE’s Universal Shipbuilding Corp. venture with Hitachi Zosen Corp., Japan’s second-largest maker of diesel vessel engines. JFE will initially raise its stake in Universal to 80 % from 50 %, leaving Hitachi Zosen with the remainder.

Japan lost the title of the world’s biggest shipbuilding nation to South Korea in 2003, while China overtook Japan two years ago, according to Clarkson Plc, the world’s biggest shipbroker.

Consolidation in Japan?s shipbuilding industry is necessary to fend off competition from China and South Korea and IHI maintains that it needs 2 to 2.5 times the size of its current shipbuilding business to compete successfully in the international Market.

IHI in August won an order from Japan?s largest shipping company, NYK, to build three container ships that will be the biggest ever built in Japan with a 9,300 TEU capacity. In comparison, South Korean yards are currently building 12,000 TEU container ships and have been increasing productivity and expanding capacity as they work through backlogs that stretch into 2012 from five consecutive years of record orders.