Japan Steel May Forge Ventures to Make Nuclear Parts in Asia

Japan Steel Works Ltd., a nuclear parts supplier for customers from Areva SA to Hitachi Ltd., is considering tieups in Southeast Asia and India after the Fukushima disaster squeezed demand at home and in the U.S.

The company will have a tough time generating orders in the next two years, President Ikuo Sato said in an interview in Tokyo. Forging ventures to make valves, tubes and other smaller parts involved in nuclear reactor construction will help open export markets for key products, he said.

“If we’re able to form such partnerships, it will be easier to enter such markets,” Sato said. “It will be necessary for us to tie with companies” that are seeking to improve their access to technology.

Emerging markets offer an opportunity for growth amid growing opposition to nuclear power in Japan and elsewhere after the Fukushima tsunami and earthquake prompted the shutdown of almost all Japan’s atomic stations.

Japan Steel operates the only plant in the world capable of producing the central part of a nuclear reactor’s containment vessel in a single piece, reducing the risk of a radiation leak. The company said on Nov. 16 that orders for forged steel used in nuclear and thermal power plants would probably total 30 billion yen ($312 million) in the year ending March 31, 43 percent lower than levels two years ago.

“Given that it will be difficult for the company to expect demand in Japan, the key is to what extent they will be able to secure overseas projects, especially in China,” said Ryo Tazaki, an analyst at Nomura Securities Co. in Tokyo.

Product Shift

Japan Steel Works rose 0.8 percent to 509 yen in Tokyo, paring declines this year to 8.8 percent. The Nikkei 225 Stock Average gained 2 percent.

The company is relying more on the segment of its business that makes industrial machinery as global demand for atomic energy declines.

Japan Steel Works expects operating profit from the division that makes steel and energy products to drop about 97 percent to 800 million yen in the year ending March 31, from 25 billion yen two years earlier, according to a Nov. 16 presentation by the company. Operating income in the machinery segment is set to surge almost fivefold to 15.4 billion yen over the two-year period, aided by demand from carmakers.

To avoid an outflow of technology, Japan Steel Works has no plan to build plants outside Japan capable of making the high-quality steel used in nuclear containment vessels, Sato said in the March 13 interview.

Cuts in Idled Capacity

Sato worked as the head of the company’s Muroran plant on the northern island of Hokkaido for five years before taking over as president in June 2009. The accident at the Dai-Ichi nuclear power plant occurred just as Japan Steel Works completed an 80 billion yen expansion at Muroran in response to demand from nuclear reactor builders.

Japan Steel Works has removed aged facilities and relocated some of its workers at the Muroran plant since Fukushima, according to Sato. The plant is operating at about 60 percent of forged steel capacity even after cutting 30 percent to 10,000 metric tons per month.

Hitachi, Japan’s second-biggest manufacturer, in October agreed to buy Horizon Nuclear Power from Germany’s two largest utilities for 696 million pounds ($1.1 billion), ensuring support for the U.K. government’s energy program.

The shale-gas revolution in the U.S. has led to a shift away from nuclear energy and fossil fuels in favor of lower-cost gas, delaying a recovery in demand, Sato said.

Germany has decided to close all its reactors. In Japan, two of the country’s 50 nuclear reactors are currently in operation. Prime Minister Shinzo Abe told lawmakers in late February that Japan will begin restarting its idled nuclear plants only once new safety guidelines are in place.

Before it's here, it's on the Bloomberg Terminal.