Nippon Steel exits Chinese venture on falling Japanese car sales

NIPPON Steel will exit a joint venture in China as its top customers – Japanese automakers – struggle to maintain market share in Asia’s biggest economy.

Baoshan Iron & Steel agreed to buy Nippon Steel’s 50 per cent stake in Baosteel-Nippon Steel Automotive Steel Sheets for 1.8 billion yuan (S$370 million), it said in a statement on Tuesday (Jul 23). That will make the factory, founded in 2004, a wholly-owned subsidiary of the world’s largest steelmaker.

Stiff competition from Chinese automakers is forcing Japanese firms – among the biggest buyers of steel sheets – to cut production and staffing or, in the case of Mitsubishi Motors pull out altogether. That’s translating to a drop in Japanese investment into China, with first-quarter volumes falling to the lowest since at least 2014.

Japanese brands accounted for 15 per cent of the Chinese car sales market in the first quarter, down from 21 per cent five years ago. Chinese manufacturers now have 53 per cent, up from just 37 per cent over the same period, led by electric vehicle maker BYD.

Nippon Steel helped kick-start China’s steel industry, now the largest in the world, in the late-1970s by providing technology and expertise to Baosteel. The move to reduce its exposure to China is a symbolic shift, and comes as the biggest Japanese steelmaker is looking to expand in India and the US.

It has been struggling to complete a proposed purchase of US Steel due to heightened scrutiny of foreign investors in an election year, and has now positioned the deal as a potential counterweight to China, which currently dominates the global market.

The decision to exit from the Baosteel venture “makes sense given US-China trade tensions,” Nomura Securities analysts including Yuji Matsumoto said in a note. BLOOMBERG