Mitsubishi Heavy Seeks Cost Cuts at Steel Venture With Siemens

  • Japanese firm warns of contraction in steel-making equipment
  • Primetals venture set up last year with Siemens holding 49%

Mitsubishi Heavy Industries Ltd., maker of everything from submarines to nuclear reactors, is seeking to cut costs at its steel-making equipment venture with Germany’s Siemens AG in the face of a contracting market.

Primetals Technologies Ltd., 51 percent-owned by the Japanese company, faces intensifying competition due to a glut of steel on world markets. The venture, formed in January last year by the merger of Mitsubishi Heavy and Siemens’ units, will speed up integration as its reviews overlapping production and engineering sites, said Executive Vice President Kazuaki Kimura. 

“Tough times will give us a chance to make a drastic change in the business structure,” Kimura said at a briefing late Friday.

Slower economic growth in China, maker of half the world’s steel, has cut domestic demand and forced mills to export their surplus, eroding profits worldwide. The global market for steel equipment contracted to 2 trillion yen ($18.8 billion) in the year ended March, from 2.4 trillion yen a year earlier, according to the Tokyo-based company, which warned that it’s unable to predict when demand will pick up.

Primetals is one of the top three producers of steel-making equipment with a global share of 11 percent, according to Mitsubishi Heavy. Siemens’ 49 percent stake allows it to sell products, such as electric furnaces and casting equipment, through Asia, including Japan, where the German company hadn’t had a presence prior to the venture.

Although partners in steel-making, the two firms compete in the power-equipment market, from which Mitsubishi derives about half of its operating income. The Primetals’ integration will involve about 1,000 job losses, cutting the workforce to around 7,000, Mitsubishi Heavy reiterated Friday.

While the Japanese company expects mid and long-term growth in the steel-making equipment market, it’s unable to foresee when the rebound might occur, Kimura said. “Steel is the foundation of industry and undeveloped and developing countries will need the metal. We’ll await for a recovery of the market,” he said.

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