JFE’s Move Pushes Consolidation of Japan Electric Furnaces

JFE Steel’s action to integrated the group’s 4 electric furnace steel makers would encourage consolidation in Japanese carbon steel electric furnace steel makers. The makers’ business condition gets severer even before the major earthquake. An official of an electric furnace steel maker said hurdle gets higher for the makers to survive when cost of international commodity of ferrous scrap gets volatile independently of domestic supply balance.

Nippon Steel has 5 carbon steel electric furnace steel makers including Godo Steel, Osaka Steel, Oji Steel, Chubu Steel Plate and Nakayama Steel Works in the group. The 5 makers’ output was 4.68 million tonnes including semi-finished steel and processed steel in fiscal 2010 ended March 2011. Nippon Steel’s group is the largest volume including Topy Industries compared with Japanese top maker of Tokyo Steel Manufacturing with 2.39 million tonnes of annual output and JFE Steel group’s makers with total 2.67 million tonnes.

Nippon Steel group’s electric furnace steel makers compete each other in some areas including shapes market in Osaka where Godo Steel has Osaka plant, Osaka Steel has Okajima Plant and Nippon Steel has Sakai plant. The group companies could cooperate more in the total group including Mitsuboshi Metal Industry and Kyushu Steel, both in which Godo Steel has shares, and Osaka Steel’s Kumamoto plant.

Sumitomo Metal Industries has Kyoei Steel and Sumikin Steel & Shapes in the group. Kyoei Steel has top share in concrete reinforcing steel bar with 1.46 million tonnes of production including shapes and flat bar and production of the subsidiary, Kanto Steel in fiscal 2010. Kyoei Steel tried to merge with Tokyo Tekko in 2009 but they abandoned the attempt due to market share for screw rebar joint.

The industry’s consolidation is slow in the makers with share by Japanese major trading firms and independent makers. Metal One has share in Shinkansai Steel and Kyushu Steel. Mitsui & Co. has share in Tokyo Kohtetsu. The makers with share by major trading firms have advantage in sales network of the trading firms. They are less appetite for consolidation due to the better profitability. Independent makers try to seek standalone growth.

Japanese construction steel demand is expected to decrease more. The electric furnace steel makers’ competition would get severer. The shrinking market should encourage the makers’ consolidation when better competitiveness is the only answer for survival.