UPDATE 1-JFE, Hyundai in talks on steel alliance -Nikkei


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TOKYO, Jan 29 (Reuters) - Japan's JFE Holdings Inc. is in talks with South Korea's Hyundai Steel Co. to help it build new mills to feed steel to its parent Hyundai Motor Co. Co., the Nikkei newspaper said on Monday, sending JFE stock higher.

Shares in JFE were up 2.8 percent to 6,880 yen as of the midsession, compared to the 1.9 percent gain in the iron and steel subindex .

A spokesman for JFE's steel unit said the company was checking the report.

JFE and Hyundai, the No. 2 steel makers in their countries and who already have a business relationship through a group firm, will also consider holding shares in each other, the Nikkei business newspaper said.

JFE supplies semi-finished products to the Hyundai Motor's 26-percent owned firm Hyundai HYSCO .

The Hyundai group is said to have called on JFE and Nippon Steel Corp. for assistance to build a $5.6 billion steel mill for car-use steel, but Japanese steel mills have so far been reluctant to join the project on concerns about a leak of technology for high-grade sheet steel in the Asian market, the most important market for Japanese mills.

Hyundai Steel, itself part of the Hyundai Motor group, said in October it would build a 5.2 trillion won ($5.6 billion) steel mill to ensure stable supplies for the automaker. The mill will have a capacity of 7 million tonnes when it is completed in 2011.

Hyundai Steel also said it would spend another 2.3 trillion won to expand capacity to 12 million tonnes by 2015 by building another furnace.

The business daily said JFE would help Hyundai with building blast furnaces and then help build and operate the mill, adding that Germany's ThyssenKrupp , which has ties with JFE, may also help in constructing blast furnaces.

JFE Steel President Hajime Bada visited South Korea this month and proposed an alliance to Hyundai's leaders, the paper said. The companies hope to ink an agreement by spring, it said.

A wide-ranging alliance between JFE and Hyundai would make another consolidation in the global steel industry.

Arcelor/Mittal , after a merger last year to create the world's biggest steel maker, is accelerating growth, buying Mexico's major steel maker Sicartsa for $1.44 billion and joining a $9 billion steel plant in India.

Nippon Steel, the world's second-biggest steel maker, is also pursuing strategy to grow in size as it raises defences against possible hostile bids from rivals like Arcelor/Mittal.

The Japanese company has inched up stakes in South Korea's POSCO Co. and brought into the consolidated group Brazilian steel maker Usiminas late last year.

But JFE has stayed away from a global alliance trend for the time being and is focused instead on strengthening its ties with a group of its Asian customers by supplying semi-finished products and on improving returns to shareholders.



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