September 08, 2008

Japanese steelmakers need to shed defensive stance – Fitch

Fitch Ratings recently said that a focus on high end products with higher margins is protecting Japanese steelmakers from increased raw material costs, but their strategy in defending themselves from hostile takeovers is likely to distract resources from more productive uses.

Fitch said that “It remains difficult for foreign competitors to replace Japanese steelmakers in their relationships with major industrial firms in that country because these companies have advanced technologically and also due to the close ties they build with customers from the earliest stages of product development.”

Fitch believes that Japanese steel manufacturers may have to follow an acquisition route to increase their size and improve their geographical imprint. It added that they also suffer from a lack of self sufficiency in raw materials which makes them particularly sensitive to the prospect of a BHP Rio Tinto merger and the deteriorating bargaining position which would follow.

Fitch said Japanese steelmakers would be better off securing access to raw materials than buying shares in their peers.