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Nippon Steel Corp., Kobe Steel Ltd. and Sumitomo Metal Industries Ltd. announced Thursday they have agreed to form a capital alliance, paving the way for wholesale consolidation of the industry.

The capital tieup will see Japan’s top steelmakers converge into two mammoth groups, with the new alliance rivaling JFE Holdings Inc., which was created earlier this year through the merger of NKK Corp. and Kawasaki Steel Corp.

Nippon Steel and Sumitomo will acquire 5 billion yen worth of each other’s shares, company officials said. Sumitomo and Kobe Steel will purchase 3 billion yen in each other’s shares, as will Nippon Steel and Kobe Steel, they added.

The three steelmakers will ensure their ironworks in neighboring districts collaborate with each other in tandem with the trilateral capital agreement, they said.

Under the cooperative arrangements, Nippon Steel and Kobe Steel will supply a combined 500,000 tons of steel sheets a year to Sumitomo, while Nippon Steel and Sumitomo will set up a new company in October to integrate their stainless steel operations, they said.

Sumitomo and Kobe Steel will cooperate in the manufacture of titanium for use in aircraft components and other goods, they said.

Backed by the new series of tieups, Sumitomo will adopt a string of profit-boosting measures, including a halt to steel sheet production at its Wakayama factory and the annual supply of 1.8 million tons of slabs to China Steel Corp. through a joint venture with the Taiwan maker, they said.

Sumitomo will consolidate its subsidiaries and affiliates and ask the Sumitomo group of companies to purchase a combined 50 billion yen in the company’s new shares, they said.

Through these steps, Sumitomo envisions reducing its combined interest-bearing debts to less than 1 trillion yen from 1.6 trillion yen by the end of fiscal 2006, they said.

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