Pressures build on Nippon Steel
KIMITSU, Japan: Sparks fly and a wall of heat hits you as 300 tons of molten iron pour from a huge bucket into a furnace amid wailing sirens at Nippon Steels Kimitsu plant near Tokyo.
Elsewhere in the factory, a thick, red-hot plate of steel slides along a production line below an elevated walkway. A protective jacket and helmet are supplied, but you still get toasted as you walk across.
High temperatures are the norm in a steel mill, but Nippon Steel, one of the worlds largest steel makers, is more worried about another kind of heat.
“The common concern of top executives at steel makers is how to avoid being taken over,” Akio Mimura, president of Nippon Steel, said in an interview in December.
The company knows how to pour, pound and roll high-quality steel, but big rivals are catching up and there is a constant battle for customers as the world splits into two or three large steel groups.
“In a world where 50- to 60-million-ton-a-year mills are becoming common, everybody knows that size matters,” Mimura said.
Nippon Steel may be No. 2 in the world, but it lags far behind the world leader, ArcelorMittal. Born in 2006 through the merger of two companies whose names it combines, ArcelorMittal produces 118 million tons of steel a year and is three times the size of Nippon Steel, which suddenly feels vulnerable to a takeover.
Adding to the heat are skyrocketing iron ore prices and the mining giant BHP Billitons $147 billion takeover bid for Billitons rival, Rio Tinto, which threatens to squeeze steel makers margins.
Nippon Steel already faces a 65 percent jump in iron ore price this year and skyrocketing prices for coking coal, freight and alloys, although it expects that strong demand for Japanese ships and cars will allow it to pass on most of the higher costs.
Nippon Steel has hardly had a moments peace since its birth in 1970 in a merger of two Japanese firms, Yawata Steel and Fuji Steel.
In the late 1980s, its home currency, the yen, doubled in value in the course of a 30-year flat patch for global steel demand. Nippon Steel cut its work force by three-fourths and shut four of its 13 blast furnaces.
The 21st century brought another challenge as the automaker Nissan Motor, frustrated with buying steel from a myriad of small suppliers, demanded steep discounts and threatened to cut the number of companies it bought from.
It was tough at the time, but the pressure forged a much stronger Japanese steel industry built around five companies, with Nippon Steel still the biggest.
Japans dynamic car industry has played a big part in Nippon Steels success. Its strategy has been focused on sharpening its technological edge so that carmakers and other manufacturers cannot survive without its steel.
But it is now aggressively seeking growth in volume as well, as the worlds fragmented steel industry consolidates into fewer, bigger groups to negotiate better with both customers and miners.
Mimura has struck deals in the past two years to build or expand automotive steel plants with partners in the United States, China, Brazil, India and Thailand - in some cases buying shares to lock the firms together.
Collaborators include Posco of South Korea, the Baosteel Group of China, Tata Steel of India and Usiminas of Brazil. More are being considered for potential mergers.
“Friendly mergers and acquisitions are one of our options,” Mimura said. “We need to further expand into overseas markets if we are to seek growth.”
Japanese steel makers enjoy booming demand from car and shipbuilding industries and from a seemingly insatiable appetite for steel in China.
With fewer, bigger steel makers, they now have more bargaining power over large customers like Toyota Motor; Komatsu, the maker of earthmoving machines; and Mitsubishi Heavy Industries, the machinery maker.
A technological edge and close contacts with picky clients have also set high barriers for would-be competitors.
At the Kimitsu plant, Nippon Steels humming production lines capable of turning out 10 million tons a year are a showcase for its hidden know-how.
It produces new kinds of high-grade steel, like an extremely strong but thin, soft, easy-to-form steel used in car bodies that helps cut their fuel consumption.
In the past five years, Nippon Steels profit has nearly quadrupled, along with its share price.
But the heat never goes away for long. Concerns about the repercussions of the U.S. subprime housing crisis and a need to buy ore from miners, rather than having its own mines, have added new pressures for Nippon Steel.
