Two major Japanese steelmakers are close to finalising a tie-up with a leading German industrial group.

NKK and Kawasaki Steel have been in talks with Germany's ThyssenKrupp over a strategic alliance since April 2001.

It is expected that under the agreement the German group would produce steel for Japanese car plants in Europe and supply the partners with various technologies.

According to Japan's business daily Nihon Keizai Shimbun, the alliance is also thought to cover the Chinese market.

NKK and Kawasaki would provide hot-rolled steel to ThyssenKrupp's joint venture in China, which produces stainless steel, the paper said.

Progress unclear

But there is uncertainty over how far the talks have progressed.

Nihon Keizai Shimbun reported on Thursday that the companies had already reached a basic agreement with a final deal to be sealed by the end of the month.

"The two major Japanese steelmakers will begin to provide the German company with technology for manufacturing light, high-strength steel plate as early as this summer," said the paper, without citing sources.

But NKK and Kawasaki, which are set to merge in October, denied the report saying that they had yet to complete the talks with the German partner.

"We are still in negotiations to seal an agreement on a tie-up centring on sheet steel products for automobiles", the companies' statement said.

"The negotiations are in their final stages now, and since we have not reached a formal agreement, I would like to refrain from commenting on what would be in (an upcoming accord)", Kawasaki Steel spokesman Satoru Tone said.

ThyssenKrupp is the world's sixth-ranked steelmaker while NKK and Kawasaki are eighth and tenth respectively, according to International Iron and Steel Institute.

Age of alliances

If the alliance between the trio is achieved, it would be the latest in a string of Japanese steelmaker's tie-ups with foreign rivals. The largest Japan's steelmaker Nippon Steel Corporation joined forces with French Usinor.

Japan's fourth-largest steel maker Sumitomo Metal Industries signed a deal with Europe's second largest steel-producer Corus Group in January 2002.

Japanese steel makers have suffered falling orders as a result of the country's economic downturn, and have been battered by the price competition from Chinese and South Korean companies.

The companies hope to cut costs both in research and production through the tie-ups.