Tokyo Steel Shifts Output as Power Costs Rise Post-Fukushima

Tokyo Steel Manufacturing Co. (5423), Japan’s top steelmaker from scrap iron, is relocating output to deal with rising power costs in the wake of last year’s nuclear disaster.

Higher electricity tariffs will push up costs for an industry already burdened by weak domestic demand, overcapacity and a strong yen, the company’s president, Toshikazu Nishimoto, said Dec. 12 in an interview in Tokyo. The company will shift output from its Kyushu mill to its operation in Okayama in the southwest of Japan’s main island, an area where rate increases aren’t planned, he said.

“Looking at the future, this issue will be serious for the industry,” he said.

The shuttering of most of Japan’s nuclear reactors after last year’s Fukushima disaster has forced utilities to turn to alternative energy sources and pay a higher price for fuel. Kyushu Electric Power, which supplies Japan’s southern island, plans to increase electricity prices by 14 percent for corporate customers from April 2013.

The proposed increase will raise power costs by as much as 800 million yen ($9.6 million) a year, or about 1,000 yen per metric ton of steel, Nishimoto said. The company’s electricity bill accounts for as much as 30 percent of its production costs.

Japan’s steel industry faces an increase in costs of as much as 100 billion yen annually due to rate increases, which will especially hurt the smaller mills that operate electric furnaces, Hiroshi Tomono, chairman of the Japan Iron and Steel Federation, said Nov. 21.

Tokyo Steel surged 6.3 percent to close at 340 yen on the Tokyo Stock Exchange, paring its decline this year to 46 percent.

Regional Consolidation

Nishimoto said Japan’s electric furnace steelmakers would need to consolidate regionally to boost their competitiveness against South Korean rivals. Tokyo Steel itself isn’t considering any mergers or takeovers because it doesn’t see any rivals that would make for a compelling fit.

Instead, the company is focusing on steel products for sales to new customers including carmakers and electronics companies, the higher-priced steel market currently dominated by bigger domestic rivals, including Nippon Steel & Sumitomo Metal Corp. (5401) and JFE Holdings Inc. (5411)

Tokyo Steel, which employs around a thousand people, is one of about 40 electric furnace steelmakers in Japan, which recycle steel by melting scrap metal. The bigger Japanese steelmakers, such as Nippon Steel & Sumitomo and JFE Holdings, operate blast furnaces that use iron ore and coal as the key raw materials to produce the metal. 

Tokyo Steel expects tariff increases by Tokyo Electric Power Co. to increase costs in the area north of the capital by about 700 million yen in the year to March 2013. It had moved some output to Okayama and Kyushu from its Utsunomiya plant serviced by Tepco, as the company is known, to save costs.

The company sold 2.4 million tons of steel in the year ended March 31, the highest among operators of electric furnace mills in Japan.

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: Jason Rogers at jrogers73@bloomberg.net

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