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Consolidation now a real prospect in Japanese stainless industry
July 2002
The Japanese stainless steel sector has, at last, made the first giant step towards much needed rationalisation. The industry has been languishing in a cycle of low profitability and declining output during the past eight years. Over the same time horizon, regional steelmakers in South Korea and Taiwan have doubled their production - fuelled by an increase in demand in China from 0.5 to 1.7 million tonnes per year.
Nippon Steel and Sumitomo Metal Industries have, in the last few days, signed a letter of intent for the integration of their stainless steel businesses. This is two and a half years after they first announced collaboration and entered into a ten year accord to rationalise production. An agreement is expected to be signed in September with full implementation in April 2003, or earlier. This will almost certainly result in the closure of some manufacturing units.
This pact may be the catalyst for further restructuring in the industry. Over the past few years, the stainless steel mills have attempted a whole range of alliances in their efforts to cut costs. These have clearly been insufficient to bring the companies back to satisfactory operational performances. Further full scale mergers may now develop over the coming years.
Nippon Steel Corp. appears to be taking the initiative. The company has also announced an extension of its co-operation agreement with Nippon Metal Industry (Nikkinko). The latter organisation will purchase substantially more plate (now 500/700 tonnes/month) from Nippon Steel and in return will supply an equivalent quantity of strip mill semis and hot rolled material. This deal could also lead to plant closures and the possibility of a merger at some time in the future.
All the stainless steelmakers are in some form of collaboration. These are designed to re-organise manufacturing operations - either through rationalisation of product grades or form. Nippon Steel has an alliance with Nisshin Steel to supply ferritic specifications and accept an equivalent quantity of austenitics in exchange. Kawasaki Steel has a similar arrangement with Nippon Yakin Kogo.
Co-operation agreements also exist in the long products segment. Aichi Steel Works is working together with Daido Steel. The former enterprise will supply approximately 500 tonnes per month of wire rod and bars to the latter. In return, Daido Steel will provide the same quantity of flat bars and sections.
Information supplied by MEPS International Ltd
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