Steel giants talk of tie-up

Under consideration: a joint venture to make sheet steel for the auto industry

Japan's biggest steelmaker said it may form a joint venture with China's giant Baoshan Iron and Steel, the first such tie-up between the two countries' steel producers.

"We are in negotiations but nothing has been decided at this point", a spokeswoman for Nippon Steel said.

A Japanese newspaper reported the two steelmakers will begin building a plant in Shanghai in 2002 to make sheet steel for the auto industry.

The joint venture will be capitalised at 2030 bn yen ($160-240m), the Nihon Kezai Shimbum said on Wednesday. Production is targeted to begin in 2004.

Baoshan Iron and Steel and its parent company Shanghai Baosteel Group would not comment directly.

A Baoshan spokeswoman said, "We have frequent exchanges on technology and management with world steel giants, including Nippon Steel."

"We are competitors as well as partners", she said.

When Baoshan Iron and Steel listed on the Shanghai Stock Exchange last year it raised 7.8bn Chinese yuan ($931m) in what was then China's biggest ever flotation.

Since then China's two leading oil companies - PetroChina and Sinopec - have announced plans to raise more than $1bn each on the Shanghai Stock Exchange.

Nippon Steel is under pressure to hold onto its ranking as the world's second largest steel company from a merger of two rivals, NKK and Kawasaki Steel, announced in April.

A tie-up with Baoshan could increase its share of the Chinese market at a time when the Japanese economy is slowing down.

For the current year, Nippon Steel forecast sales would fall by 1.1% to 1.24 trillion yen ($9.90bn).