Nippon Steel Corp. and Sumitomo Metal Industries Ltd. will cease production of certain steel products that are unprofitable for each while increasing production of the other's discontinued item, company officials said Thursday.

Nippon Steel will withdraw from seamless pipes and Sumitomo Metal, Japan's largest maker of seamless pipes, will increase production of the pipes, the officials said.

Sumitomo Metal plans to halt production of stainless steel sheets. Instead, they will be supplied to the company by Nippon Steel, Japan's largest producer of the product, the officials said.

Under the agreement, Nippon Steel will abandon its seamless pipe production facilities at its plant in Kitakyushu by spring 2001 while Sumitomo Metal will halt electric furnace operations at its Wakayama mill, they said.

This is the first mutual supply agreement by major steelmakers for reducing production in unprofitable businesses.

Akira Chihaya, president of Nippon Steel, indicated that his company intends to further review its operations and will consider pulling out from any money-losing units.

"There is no sacred area and problematic product lines will be examined in the same manner (as seamless pipes)," Chihaya told a news conference.

Steel exports to Asia are faring well but are projected to slow down in the fall, while domestic demand for steel has not yet shown signs of improvement. Under these circumstances, steelmakers are struggling to resolve the problem of excess facilities.

Asked about a possible partnership with other firms, Matao Kojima, Sumitomo Metal president, said, "There are no specific plans," but he added that a partnership would be formed "if there is a business where (a partnership) can last and we can coexist and prosper together."

Another factor behind the Nippon Steel-Sumitomo deal is the collapse of the "iron order" -- the share of production traditionally held by each firm in the industry. The rigid order observed in production shares was unable to survive the prolonged recession and the decision by automakers to reduce steel materials purchases.

Nippon Steel's decision to reshuffle its business lines by striking the business swap with Sumitomo Metal was prompted by an agreement reached by Kawasaki Steel Corp. and NKK Corp. to cooperate in the purchase of materials and the shipment of products.

Seamless pipes are used for oil drilling and the transportation of natural gas. Most seamless pipes produced domestically are exported.

At the news conference announcing Sumitomo Metal's decision to withdraw from the stainless steel business, Kojima also said the company has decided to retain its two mills at its Wakayama Works, reversing an earlier plan to scrap them and build a new facility.

He explained that the two mills will be used to boost production of seamless pipes, demand for which is rising as a result of increased crude oil prices. "The business environment has changed," Kojima said.