JFE’s Move to Encourage Japan Electric Furnaces’ Consolidation

Japanese electric furnace steel makers would seek consolidation to follow merger of JFE Steel’s 4 electric furnace subsidiaries. The consolidation is long lasting theme in the industry when domestic construction demand has decreased. Especially concrete reinforcing steel bar market is severe under more volatile and internationalizing ferrous scrap market for the makers to make money when 29 makers try to survive in shrinking market. Japanese steel interests expect merger of electric furnace subsidiaries of Nippon Steel and Sumitomo Metal Industries along with the consolidations of the parent companies.

Japanese rebar shipment decreased to 7.39 million tonnes in fiscal 2009 ended March 2010 from the peak of 14.17 million tonnes in fiscal 1990. The rebar makers’ production capacity is estimated to be 17-18 million tonnes per year as same as the peak. The rebar makers operate only weeknight and weekend to save electricity cost. However, the makers suffer from decreasing demand to the loss making 7-8 million tonnes level.

Many industry sources expect domestic rebar demand is around 8 million tonnes in fiscal 2011 under slow demand for condominium especially after the major earthquake in March. JFE Steel’s 3 electric furnace subsidiaries excluding JFE Bars & Shapes posted recurring loss in fiscal 2010. JFE Steel decided to merge the 4 makers due to severe business condition. JFE Steel controlled 100% shares of Toyohira Steel in February as a part of the step for the merger.

Not only JFE Steel but also Nippon Steel and Sumitomo Metals have overlapped items and business areas among the group companies. Better operations in the group companies would be a major part for their effort to improve the major steel makers’ international competitiveness.

The consolidation move by domestic major steel makers would impact on other electric furnace steel makers including affiliates of Japanese major trading firms. Japanese electric furnaces should improve the profitability through the reshuffling of the loss making makers. After the consolidation, the survived makers would grow as players with international competitiveness.