Severfield-Rowen would not comment on any planned job losses as a result of the merger, expected to be completed by the end of the year.

A new contracting firm Severfield-Watson Structures will incorporate the assets and resources of Severfield-Rowen Structures, Watson Steel Structures and site erection firm Steelcraft Erection Services.

The new steelwork firm will continue to manufacture at its two existing plants at Dalton in North Yorkshire and Bolton in Lancashire, which will deliver improved operational performance from 2013.

Operations at Fisher Engineering and Atlas Ward Structures will remain unaffected at present.

Tom Haughey, chief executive officer, warned that a fresh wave of price cutting in the market and longer payment periods was putting pressure on Severfield.

Pre-tax profit in the first half slumped from £2m last year to just 252,000 on turnover up 10% at £136m.

“The group has continued to encounter challenges in the UK business with diminishing overall UK construction demand, the re-emergence of pricing pressure and the protraction of contractual settlements,” he said.

This saw operating margins fall from 4.7% to just 1.8% in the first half of this year.

“In response to these conditions and to allow Severfield to achieve improved efficiency, cost base and performance benefits, the group is proposing to merge three of its UK businesses, which it hopes to complete before the end of 2012.”

He said: “Despite the backdrop, the UK order book remains stable at £218m, which maintains full activity at all UK plants into 2013 and suggests further growth in market share.

“UK margins are nonetheless coming under pressure again as clients and the supply chain push much harder to compete in a shrinking market.”

He warned that the demand outlook, with the current exceptions of London commercial, industrial, warehousing and some energy sectors, continued to be stagnant at best.

“Political policy direction on UK energy would be a helpful stimulus to UK construction but the potential projects pipeline of £465m in the UK remains sufficient for our needs in 2013.”

In India, joint venture company JSW Severfield Structures is now operating profitably with prospects pipeline growth from £80m to £147m.