Nippon Steel,allies eye 40 mln tonnes output by '09

TOKYO, July 13 (Reuters) Nippon Steel Corp. said on Thursday that it and its allies would raise their combined crude steel output to more than 40 million tonnes a year by the end of March 2009 to cope with a global industry realignment.

A flurry of consolidation talk has swept through the industry after Europe's Arcelor agreed to a .3 billion takeover from Mittal Steel, creating a company with annual crude steel output of over 120 million tonnes.

A Nippon Steel spokesman said the group's output will grow 18 percent over the next three years due to expansion of Nippon Steel's plants and a deepening alliance with Sumitomo Metal Industries Ltd. and Kobe Steel Ltd., confirming a report in the Japan Metal Bulletin, a trade paper.

Nippon Steel President Akio Mimura has said volume expansion was inevitable to cope with global realignment in the sector.

''We need to take steps to make the industry more balanced,'' Mimura told reporters earlier this week.

''We'll continue our strategy of strengthening high-end products, but it would be inevitable to also seek an expansion in terms of volume.'' Nippon Steel, Sumitomo Metal and Kobe Steel have recently increased cross-shareholdings to strengthen cooperation and to fend off possible takeover offers.

Nippon Steel said repairs and the expansion of its Oita plant in western Japan, to be completed by the end of March 2009, would boost its parent-based crude steel capacity to 35 million tonnes, up from 28 million tonnes in 2000.

That would take the combined capacity of the three Japanese firms to more than 40 million tonnes.

Auto makers have been wary about the potential of Arcelor-Mittal's pricing muscle as it looks set to become the world's biggest steel producer by far.

''It would be a problem if one company were to dominate the market,'' Takeo Fukui, CEO of Honda Motor Co. said. ''At least a moderate level of competition is necessary for both the steel industry and car makers.'' Nippon Steel recently announced plans to buy back 100 billion yen worth of its own shares for ''possible strategic investments'', and raised its stake in affiliates and units to deepen alliances.

REUTERS CS KP1228