The announcement that Kyoei Steel Ltd. and Tokyo Tekko Co. Ltd. are set to merge in October may not herald the long-awaited consolidation of Japan's electric-arc furnace (EF) sector despite its pressing need to do so, analysts and market players warn.

Under the deal, the two companies will both de-list and replace their shares with a new holding company on Oct. 1.

Kyoei Steel is 25.8-percent owned by Sumitomo Metal Industries Ltd. With annual sales of 149 billion yen ($1.52 billion) last year and an annual production capacity of over 2.5 million tonnes, Kyoei ranks as Japan's second-largest EF operator, after Tokyo Steel Manufacturing Co Ltd., and the country's leading rebar producer. With a production capacity of around 700,000 tonnes, Tokyo Tekko is Japan's largest producer of steel screws and rivets, last year posting sales of 61 billion yen ($623.2 million).

Japan's electric furnace sector mainly produces commodity-grade steel, principally for the nation's $12-billion construction steel industry, and is rife with overcrowding.

While the United States has three major mini-mill operators and South Korea has about six following a bout of...