Tokyo Steel to Triple Output at New Plant, Eyes Auto Share

Tokyo Steel Manufacturing Co. (5423), Japan’s biggest maker of the alloy from scrap iron, plans to triple output at its newest plant as it seeks to eventually compete with Nippon Steel Corp. (5401) in the auto industry market.

The Tahara city plant in central Japan is targeting production of 1 million metric tons of hot-rolled coil in the financial year ending March 2013 for sale in the domestic and overseas markets, Director Kiyoshi Imamura said in an interview. Output was about 350,000 tons in the previous year, the company said in January.

“Conditions are now on our side,” Imamura said April 11 at the company’s Tokyo headquarters, referring to improved operations at the Tahara plant and a recovery in demand. “The chance has come for us to chase the target.”

The $2.2 billion plant is located close to a Toyota Motor Corp. (7203) factory and Mitsubishi Motors Corp. (7211)’s Okazaki facility, making it easier to ship metal sheets to the carmakers. Tokyo Steel is seeking to widen its customer base to include auto and electronics, which are controlled by Nippon, Japan’s largest steelmaker, and JFE Holdings Inc. (5411), as demand from builders wanes amid a cutback in public works spending.

Nippon Steel spokesman Tsuyoshi Yoshizumi declined to comment.

Tokyo Steel shares fell 2.7 percent to 678 yen at the close in Tokyo. The stock has risen 8.3 percent this year.

The company’s first new factory in 14 years opened in 2009 in Tahara city and is located 4.2 kilometers (2.6 miles) from the Toyota facility that produces Lexus models.

Test Samples

Tokyo Steel and other operators of electric-arc furnaces use scrap from buildings and discarded cars and ships to produce steel, mostly for construction purposes. High-grade steel used in cars is typically made from iron ore and coking coal using conventional blast-furnaces.

“Tokyo Steel and blast furnace steelmakers have competed for decades” in construction steel, said Yoku Ihara, an adviser at Retela Crea Securities Co. in Tokyo. Tokyo Steel’s foray into automotive steel will be “a threat” to traditional suppliers, including Nippon Steel, he said.

The steelmaker has supplied samples of its new products to “dozens” of companies to test whether the alloy can be used in cars and consumer electronics, Imamura said, declining to identify potential customers for reasons of confidentiality. It will start shipping the alloy to Southeast Asia this quarter, he said, without elaborating.

“Carmakers and consumer electronics makers are interested in our products,” Imamura said. “But the facilities at the Tahara plant are just completed and we have yet to know sales volume for cars.”

Japan’s Ricoh Co. (7752) said March 27 it will use steel sheets made from scrap in new models of office equipment to be released by March 2013. The alloy was jointly developed with Tokyo Steel.

Reduced Emissions

Producing steel from scrap cuts carbon-dioxide emissions by about 75 percent, compared with making the alloy out of iron ore and coal, Tokyo Steel said on its website.

The Tahara plant’s production will be ramped up to about 70,000 tons this month from slightly less than 50,000 tons a month earlier, Imamura said.

The domestic market for construction steel has shrunk 34 percent over the five years through March 2011, according to data from the Japan Iron and Steel Federation. Japan’s orders for ordinary steel exports slid 4.6 percent in February, compared with a year earlier, the smallest decline in six months, according to data from the steel federation.

“In matured markets like Japan, the share of construction steel is declining, but demand for steel sheets used in cars and consumer electronics is increasing,” Imamura said.

Tokyo Steel remains focused on the domestic market and will increase exports to Asian countries when there’s demand, Imamura said. The weakening of the yen from a record high in October has helped to restore the competitiveness of Japanese companies against overseas rivals, he said.

The yen, which climbed to a postwar high of 75.35 a dollar on Oct. 31, traded at 80.92 yen to the dollar as of 4:07 p.m. in Tokyo.

To contact the reporters on this story: Masumi Suga in Tokyo at msuga@bloomberg.net; Yasumasa Song in Tokyo at ysong9@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net

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