Nippon Steel and Sumitomo Metal Industries announced plans Thursday to merge their operations next year, as the industry titans face drastic changes in raw materials costs and intense competition outside their domestic market.

The merger, which is expected to create the world's second largest steel producer, aims to expand the combined companies' global manufacturing and supply system at a far faster rate in such countries as China, India, the Association of Southeast Asian Nations (ASEAN), and Central and South America.

This move comes as Nippon Steel and Sumitomo Metal have faced a pullback from Japanese automakers, who are setting up shop in emerging markets and relying on local steel producers in those countries, according to a Reuters report. The companies noted they've operated an alliance since 2002, but felt the current industry climate warranted a merger.

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