JFE Steel to Merge Group 4 Electric Furnace Steels

JFE Steel announced on Tuesday the firm integrates the group electric furnace steel makers. The firm decided to integrate the 4 group companies including JFE Bars & Shapes, Daiwa Steel, Tohoku Steel and Toyohira Steel effective on April 1, 2012. JFE Steel decided to scrap facility of idling Tohoku Steel after the major earthquake. The total raw steel output of the 4 makers was 2.67 million tonnes in fiscal 2010 ended March 2011, which is same level as Japanese largest electric furnace steel maker of Tokyo Steel Manufacturing. The combined company’s concrete reinforcing steel bar output is annual 1.2 million tonnes, which represents around 15% of domestic share and the second position after Kyoei Steel.

JFE Steel makes detailed plan to integrate the 4 makers to maximize the synergy. JFE Steel has no plan to scrap other facility than Tohoku Steel’s facility. The new company has 6 plants including Toyohira Steel in Hokkaido, JFE Bars & Shapes’ Sendai, Kashima and Himeji and Daiwa Steel’s plants in Saitama and Okayama. The combined company tries to improve the sales force, cost structure and efficient administration along with the efficient production. The 4 makers have around 3.8 million tonnes of annual output capacity based on night time, weekend and holiday operations. The rebar output capacity decreases by 320,000 tonnes or more than 10% from around 2.8 million tonnes.

Tohoku Steel keeps selling the products through April 2012 with supply from Kashima plant of JFE Bars & Shapes and Daiwa Steel’s Saitama plant. JFE Steel keeps the jobs by allocating the workers in the group without forced job cut. JFE Bars & Shapes restarts steel bar plant operation in mid-July, wire rod plant in early August and steel making ship and casting plant in mid-August. The firm resumes the operation for all products in and after October as before the quake.

Japanese electric furnace steel makers are suffered from slow demand for construction along with the over capacity. They are forced to consolidate each other to reduce the capacity when many of them cannot make money. JFE Steel’s president Eiji Hayashida said Japanese electric furnace steel makers cannot avoid consolidation. JFE Steel started study to integrate the group makers after Lehman shock. JFE Steel controlled 100% share of Toyohira Steel in February, which was listed company.

JFE Steel couldn’t integrate the 4 makers before due to small synergy with the different market for each maker. However, the major earthquake stopped the operation at Tohoku Steel and JFE Bars & Shapes with around 3 billion yen and 19.4 billion yen of onetime loss respectively. The damage apparently encouraged the integration.

JFE Steel’s vice president Mitsugu Aikawa said at the press conference JFE Steel will decide how to use plant and land of Tohoku Steel after the shutdown. He said the employees of Tohoku Steel will be hired in JFE Steel group including the combined company. He said JFE Holdings already posted reserve for the impairment loss from scraping facility of Tohoku Steel for fiscal 2010.

Mr. Aikawa said he expects synergy from efficient operation and optimum production in wider plant bases. He expects the combined company can improve the marketing while the firm can share wider technology and human resource base. Mr. Aikawa emphasized smooth and speedy integration is the top priority along with synergy. He said the group discusses the detail until April 2011 for the integration.

Mr. Aikawa said JFE Bars & Shapes tries to resume the operation at the Sendai plant after the damage from the quake while the plant removed the scrap including flooded automobile in the plant site as Tohoku Steel. He said the plant now tries to check and repair the equipments.