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NKK Corp. and Kawasaki Steel Corp. on Friday set up JFE Holdings Inc., a joint holding company, as the first step toward forming the JFE Group and becoming the world’s fourth largest integrated steelmaker.

The launch of JFE Holdings heralds a new era in which the Japanese steel industry will be divided into two giants: the JFE Group and Nippon Steel Corp.

NKK’s and Kawasaki’s combined crude steel production in 2001 was about 25 million tons, which approaches the output of Nippon Steel, the world’s largest integrated steelmaker. That ranks them fourth in world crude steel output.

But they are looking for more than market share.

“There is no point in just having a big company,” said Kanji Emoto, chairman of JFE. “Our biggest aim, above all else, is to create a company that makes big profits.”

Added JFE President Yoichi Shimogaichi: “One of the issues we will address is strong finances. We aim to have a strong company that is not overshadowed by any rivals.”

With the establishment of JFE Holdings, NKK and Kawasaki have become its wholly owned subsidiaries. Their operations will be further integrated by business segment under the holding company in April 2003.

A decision has already been made on the integration of five segments, including steel and engineering.

Both the president and the chairman emphasized that the various subsidiaries owned by NKK and Kawasaki will be speedily integrated to ensure their operations do not overlap.

In the mainstay steel segment, four steel mills in the country will be reorganized into two — an eastern Japan ironworks and a western one.

The JFE Group will further promote business amalgamation and efficiency through abolition of two blast furnaces and the suspension of steel production lines, they said.

By taking such integration measures, the JFE Group aims to cut costs by 20 billion yen by the end of the 2002 business year, and by 80 billion yen by the end of fiscal 2005, which ends in March 2006.

It also aims to improve its finances by reducing interest-bearing debts from the current combined 2.05 trillion yen held by NKK and Kawasaki to 1.8 trillion yen by the end of fiscal 2005.

The Japanese steel industry will need to continue to reorganize and get rid of surplus facilities in the face of strong global competition.

Nippon Steel is moving to make alliances with Sumitomo Metal Industries Ltd. and Kobe Steel Ltd., and the emergence of two giants in the steel industry is expected to strengthen moves to reorganize.

Reorganization will probably involve ties with foreign companies as well as Japanese firms as steelmakers respond to the international reorganization taking place among automakers, their major customers.

JFE has formed a technological tieup on steel plates with Germany’s Thyssenkrupp Steel AG.

As for strategies in China, Nippon Steel is currently in talks with Boashan Iron and Steel Co., China’s biggest steelmaker. A JFE spokesman said the group is also considering furthering its alliance with Chinese companies.

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