How Did Nippon Steel Escape the Recession?..."Large-Scale Expansion Needed Through Structural Reforms"

[Asia Economy Reporter Hwang Yoon-joo] As the business environment deteriorates due to downturns in upstream industries such as construction, automotive, and shipbuilding, and shrinking demand, an analysis has emerged that domestic steelmakers should pursue large-scale restructuring similar to Japan through structural reorganization.

On the 19th, according to POSCO Research Institute, "As the domestic steel market enters a low-growth phase, it is necessary to promote consolidation centered on competitive companies and induce autonomous adjustment of excess facilities," it stated.

This outlook is due to the unclear achievement of a 2% economic growth rate this year and the expected stagnation in growth of major demand industries such as automotive and construction, which will worsen the management environment for steelmakers. In particular, domestic steelmakers are evaluated to be more vulnerable to environmental changes because they distribute steel products not through large trading companies but by other means.

The POSCO Research Institute cited Japan as an example of structural reorganization. Japan began steelmaker restructuring with the launch of JFE Holdings and has now established a three-major blast furnace system.

The trigger was the recession of the 1990s, referred to as the "Lost Decade." In 2002, NKK and Kawasaki Steel, which were the second and third largest in the Japanese steel industry, merged to launch JFE Holdings. This marked the beginning of ongoing structural reorganization in the Japanese steel industry. In 2012, Nippon Steel and Sumitomo Metal merged to form Nippon Steel & Sumitomo Metal Corporation, and currently, the industry is organized into three major blast furnace companies: Nippon Steel (formerly Nippon Steel & Sumitomo Metal), JFE Holdings, and Kobe Steel.

Along with steelmaker restructuring, the restructuring of Japanese steel trading companies also played an important role. Japan has a unique steel distribution structure. Jo Hang, a researcher at POSCO Steel Research Center, explained, "In Japan, trading companies are involved in most transactions," adding, "Direct sales by steelmakers account for only about 5%, and contracts are made through the 'Himotsuki' method, where order volumes are decided in advance through trading companies, and the 'Miseuri' method, which involves one-time transactions."

The 'Himotsuki' method refers to supplying required steel materials according to production plans established in advance by demand industries such as automotive and shipbuilding. Japanese trading companies mediate transactions between steelmakers and demand industries and earn commissions, accounting for about 70% of total transaction methods. The problem is that trading companies do not bear the inventory risk of steelmakers nor participate in negotiating major transaction terms, leading to ongoing debates about the redundancy of trading companies.

The 'Miseuri' method refers to a sales method where quantity and price negotiations are conducted at each transaction point, as seen in construction and distribution sectors. Trading companies handle this role, accounting for about 25% of total transactions.

As Japanese steelmakers entered structural reorganization, steel trading companies also expanded through mergers and alliances.

In 2001, Itochu Corporation and Marubeni Corporation separated their steel divisions and integrated management to establish Itochu Marubeni Steel, marking the starting signal. In 2003, Mitsubishi Corporation and Sojitz Corporation merged to form Metal One.

Through this, Japan reorganized into five major general trading companies: Itochu, Mitsubishi, Sumitomo, Mitsui, and Marubeni. The steel divisions were organized into a four-power system: Itochu Marubeni Steel, Metal One, Sumitomo Corporation, and Mitsui & Co. (two specialized steel trading companies and two general trading companies' steel divisions).

Recently, additional mergers among trading companies' building materials sales divisions have taken place. In 2014, Mitsui & Co. and Metal One integrated their building materials and steel raw materials divisions to establish MM Building Materials. In 2016, Sumitomo Corporation and Itochu Marubeni Steel integrated their building materials divisions to establish Itochu Marubeni Sumisho Technosteel.

Jo Hang, senior researcher at POSCO Research Institute, emphasized, "Domestic steelmakers also need efforts to enhance competitiveness at the individual coil center level (steelmakers that cut and supply products contributing to the steel industry) through service improvements such as complex processing."

This content was produced with the assistance of AI translation services.