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Japanese steel mills should consolidate to counter intensifying competition from global rivals, including China, an official of the Organization for Economic Cooperation and Development said.

“Looking at a worldwide trend, further consolidation will be desirable” for Japan’s blast-furnace mills, Risaburo Nezu, chairman of the OECD’s steel committee, said recently in Tokyo. “It would be difficult for them to consolidate into a single company, but about two might make sense.”

Nippon Steel Corp. was knocked off its slot as the world’s second-largest steelmaker in terms of production last year after being overtaken by five Chinese mills, according to the American Institute for International Steel.

By country, Japan remains the second-largest producer after China, which accounts for half the world’s crude steel output, figures from the World Steel Association show.

JFE Holdings Inc., Japan’s second-largest steelmaker after Nippon Steel, was formed in 2002 through a merger between Kawasaki Steel Corp. and NKK Corp.

Nippon Steel, Sumitomo Metal Industries Ltd. and Kobe Steel Ltd., the country’s third- and fourth-largest mills, have forged a partnership by owning stakes in each other.

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