JFE, IHI Mull Shipbuilding Merger

The move comes as Japanese shipbuilders face intensifying competition from regional rivals South Korea and China.

IHI and JFE will establish a committee to discuss the details of how operations of IHI subsidiary, IHI Marine United Inc., and its JFE counterpart, Universal Shipbuilding Corp., can be integrated, the companies said in a joint statement.

They will also discuss production details, merger ratios and ways to stay competitive in shipbuilding operations, they said.

JFE, which operates a wide range of engineering business, including steel manufacturing, boosted its stake in Universal Shipbuilding last year to 85 percent by buying a 35 percent stake from shipbuilder Hitachi Zosen Corp.

"We anticipate intensifying global competition, largely due to aggressive business and investment expansion by South Korean and Chinese shipbuilders," the companies said. "Due to uncertainty in the foreign exchange market and procurement situation, the outlook for the shipbuilding business is not rosy."

The business climate has prompted the two companies to agree on strengthening their businesses through merger, they said.

Universal Shipbuilding was established in 2002 as a joint venture of Hitachi Zosen and the former NKK Corp., which later merged with Kawasaki Steel to create JFE Holdings. It ranks second in Japan after Imabari Shipbuilding Co. in gross tonnage of ships built per year.

IHI Marine was established in 2002, through a spinoff of shipbuilding operations from IHI's former entity Ishikawajima-Harima Heavy Industries Co.