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JFE embraces ‘only one/number one’ mindset to drive growth

Keywords: Tags  Ken Shimamoto, natural gas, shale gas, steel pipe, steel tube, Chita Works, Jo Isenberg

When Shimamoto is a patient man. He has to be.

At the moment, the Manager of the Manufacturing Dept. of JFE Steel Corp.’s Chita Works has little choice but to wait for the shale oil boom in the United States to dry up and drillers here to turn their attention back to punching holes in the ground to extract shale gas.

“As you know, the U.S. has started producing more shale oil, which is shallow,” Shimamoto told AMM during a recent visit to the Tokyo-based steelmaker’s Chita Works, which has forged a reputation as one of the world’s leading producers of high-end, high-performance steel pipe and tube.

“As a result, demand for carbon steel pipe is increasing,” the JFE executive explained. “But we strongly believe that high value products such as high chrome and/or high strength products will have a place in the future.”

Chita, which produced 640,000 metric tons of pipe and tube products in 2011, is strategically located in Japan’s Chukyo industry district in the center of the country. The facility faces the Kinuura Port, which acts as a revolving door for the sourcing of billet, hot and stainless coil into the plant from JFE sister facilities and the shipment of finished product to customers around the world.

About 60 percent of Chita’s output is earmarked for the export market with roughly the same percentage of shipments destined for customers in the energy sector. Key consuming regions are Asia and North America.

The Chita Works is roughly equidistant from JFE’s West Japan Works, one of the world’s largest and most competitive steelmaking complexes comprising the Kurashiki and Fukuyama plants, and the East Japan Works, which produces mainly high alloy steel sheet, stainless steel, plate and powder steel and includes the Keihin and Chiba plants.

Billets and substrate sourced from JFE’s East and West Japan Works are transformed into finished product by the Chita Works’ three electric-resistance-weld (ERW) mills 4-inch diameter, 6-inch diameter and 26-inch diameter) and two seamless mills, one small diameter and one medium diameter.

The heart of Chita’s product lineup is a family of high chromium stainless steel seamless pipe for oil country tubular goods (OCTG) and boiler tubes formulated to provide high strength and high corrosion resistance while also meeting requirements for low cost and short delivery times. “The primary focus for high-end products has been 13-chrome seamless, which is our main product at Chita,” Shimamoto said. “JFE has also developed and been producing 15 and 17 chrome seamless, low-alloyed high-strength sour resistance seamless and high strength heavy wall electric-resistance-welded steel pipe, which will be our focus in addition to 13-chrome seamless for the future.”

In the 70 years since the Chita Works was established in 1943 as a special steel facility of Kawasaki Heavy Industry Inc., the plant has undergone a multitude of changes. None were more significant structurally, however, than the formation in 2002--and in the face of difficult times--of JFE Holdings Inc. through the merger of Nippon Kokan K.K. (NKK) and Kawasaki Steel and the birth a year later of JFE Steel.

Today, JFE Steel is Japan’s second largest integrated steelmaker behind Nippon Steel Sumitomo Metal Corp. (NSSMC), which merged in October of last year to create what now ranks as the world’s second largest steel producer according to the latest (2012) statistics from the Brussels, Belgium-based World Steel Association.

JFE reported crude steel production on a consolidated basis of 30.69 million metric tons for the fiscal year ended March 31, 2013, up from 27.97 million metric tons in FY 2011. Shipments for FY2012 on a non-consolidated basis totaled 25.23 million metric tons, up from 24.67 million metric tons in FY 2011.

More telling than tonnage stats were the figures reported by JFE Steel referencing a 13.9-percent plunge in the average selling price of their products--to 70,600 yen-per-ton from 82,000--and an almost five-percent jump in the Japanese steelmaker’s export ratio on a value basis--to 49.9 percent in FY 2012 from 45.0 percent in FY 2011.

Both are tell-tale signs of the toll persistent economic uncertainty, a global steel capacity glut and associated ills have taken on the world steel industry in general and JFE Steel in particular. It also serves as a window into how JFE is addressing that collective challenge and its progress to date.

In a statement issued in late April accompanying the release of its FY 2012 financial results, JFE Holdings acknowledged some early signs that Prime Minister Shinzo Abe’s mix of monetary and fiscal stimulus was delivering positive results.

“Since the beginning of the current calendar year, the excessively strong yen has been corrected and stock prices have been rising,” JFE stated. The company warned, however, that “economic uncertainties such as slowed growth in emerging economies and the debt crisis in European countries still represent downward risks to the Japanese economy.”

With or without the aid of “Abenomics,” the JFE Group has taken several restructuring steps to facilitate new growth, particularly given what it describes as the “expanding supply-demand gap worldwide and growing business skills in emerging countries.”

One such move involved reorganizing the JFE Shoji Trade Corp. as a wholly owned subsidiary of JFE Holdings effective October 1, 2012. “By leveraging JFE Shoji’s marketing capabilities, the Group aims to pursue domestic and international projects, develop new clients and procure raw materials through close coordination of Group companies,” the company said.

Another step involved a strategic re-jiggering of JFE Engineering’s target markets with the unit exiting the construction steel structures business and concentrating instead on the environmental and energy fields.

Although JFE Holdings opted against issuing fiscal 2013 consolidated earnings when it released its FY 2012 financial results in late April, claiming a number of factors made it impossible to compile “rational forecasts,” it is sticking to its’ fourth medium-term-business plan. A road map originally issued April 1, 2012, the plan establishes strategic operating guidelines to be implemented from that date through March 31, 2015.

The document sets forth five corporate-wide measures and a single but highly ambitious objective for JFE Steel. Group-wide, the plan calls for JFE to:

>> Restructure its domestic profit base by strengthening competitiveness through business alliances and merger and acquisition activity as well as cost-cutting and to support offshore investment in markets with growth potential.

>> Enhance corporate value through technological advantages. The goal here is to pioneer process technologies that lead to deeper cost reductions and a stronger JFE brand, particularly in the environmental and energy markets.

>> Press forward with large-scale investment for growth and cost reductions. Although analysts have questioned whether JFE has the fiscal wherewithal to see such a plan through, the company has targeted a total investment on one trillion yen ($12.8 billion) between FY 2012 and FY2014.

>>  Expand the company’s presence in global markets, focusing specifically on markets with growth potential and leveraging JFE Shoji Trade Corp.’s network to provide products and services that meet the needs of local customers. To get the job done, JFE said it would lift the ratio of overseas investment to total investment to 50 percent compared with 25 percent actual under the previous plan.

>> Establish a corporate structure for sustainable growth. Initiatives here range from strengthening corporate governance to diversifying human resources on a global scale.

A variation on the same core themes, the overarching goal of the JFE Steel Group through the life of the medium-term plan is to solidify its reputation as a world-leading global steel supplier by focusing on high-end steel, capturing growth potential through forging technical cooperation and strategic alliances and enhancing product value. Along the way, JFE plans to grow capacity to 40 million metric tons in the coming five years and then eventually to 50 million metric tons.

Other measures being taken range from accelerating expansion into overseas markets to pursuing more competitive procurement of raw materials. JFE Steel said it will increase its iron ore and coking coal sufficiency ratio to 30 percent and will develop the ability to adjust purchasing volume in a timelier manner in response to fluctuating production volume.

In addition, the JFE Group said the steel business will place “a strategic priority on shifting from the current export-driven business model to one that combines exports and local production, including by aggressively expanding production capabilities overseas.

Central to all these measures is a corporate-wide mandate to pioneer “Only One” and “Number One” products, an objective which essentially hinges JFE’s growth and future well-being on offering unique, high-value steel products made possible by pioneering one-of-a-kind production technologies.

Given its history, facilities lineup and a customer base dominated by the fast-paced energy sector, JFE’s Chita Works is uniquely positioned to test JFE’s branded “Only One/Number One” formula for growth. Results to date are promising.

Earlier this year, JFE Steel and Marubeni-Itochu Steel announced that the Chita Works supplied 2,000 metric tons of American Petroleum Institute (API) X80 grade electric-resistance-welded (ERW) steel pipe to Australian energy company Santos Ltd. The advanced pipe is tagged to serve as surface casing in the Crown 1 and Winchester-1 drilling campaigns offshore of north-western Australia.

The contract marks a departure for drillers, who typically would turn to more expensive seamless or UOE pipe to insure the high strength and extra thickness needed to withstand the pressures of such deep-sea environments. JFE sources note that their new cost-effective product is the world’s first such API X80-grade pipe offering thickness greater than 20 mm to meet the requirements of these extreme environments. The exact size of the pipe is 20-inches in outside diameter (OD) x 20.574 mm x 40 feet .

Earlier and in another first, this time involving an order filled by the Keihin District facility of JFE Steel’s East Japan Works, the steelmaker and Marubeni-Itochu Steel landed an order to supply 3,400 metric tons of MightySeam¨ ERW steel pipe to Statoil, an international energy company based in Norway.

The pipes were shipped to Statoil’s Hyme and Stjeme projects in the North Sea and Norwegian Sea respectively. Both projects used the reel-based method to lay pipelines, an approach suitable for medium-scale installations that up to now has mainly involved the use of seamless or heat-treated ERW pipe.

With the reel-based procedure, pipe is welded on land before it is wound aboard a specialized pipe-laying vessel. The traditional--and more expensive--approach involves welding pipe aboard ship just before it is being laid.

According to JFE sources, the Statoil projects mark the world’s first such application of non-heat treated ERW pipes. Key to the breakthrough was the development by JFE researchers of the proprietary MightySeam technology, which is said to dramatically improve weld toughness, even at temperatures below -50 deg. C.

“This is a very advanced technology,” Shimamoto explained. “Conventional processes cannot achieve this type of toughness.”

MightySeam incorporates a number of advanced processes, including the phase-array ultrasonic technique, to control the morphology and distribution of oxides emitted during welding and check for flaws along the weld’s entire length on a real-time basis. “MightySeam also offers excellent strength and dimensional accuracy,” he noted.

In a series of steps taken over the past two years to further bolster its fortunes in the energy market, JFE Steel late last year acquired the premium threading business and related assets of Louisiana-based Benoit Machine LLC.

The purchase of Benoit for $91.5 million was transacted through Benoit Holding Co., which was jointly established by JFE Steel and Kanematsu USA Inc., a wholly owned subsidiary of Kanematsu Corp. in Japan. The acquisition of Benoit, which provides premium threading services for oilfield tubing and a full line of down hole accessories, positions JFE to capture growing demand by providing a full array of products and services to the oil patch.

A decade ago, when Nippon Kokan KK and Kawasaki Steel merged, the new entity was called JFE Steel. “The J means Japan, F is for Fe, the chemical symbol of iron, and E is for engineering,” a company brochure points out. “It also means Japan Future Enterprise,” the literature stated.

On a day-to-day basis, employees across the steelmaker’s front are taking concrete steps to insure that the enterprise has a future. “I think we are concentrating on meeting that objective in two ways,” Shimamoto said, sharing his personal view. “To make us more competitive in the market, we need more cost reduction. We must also increase productivity in the manufacture of high-end product,” he added. “And we must constantly meet the customer’s requirements.”

Looking ahead, the JFE executive sees promising potential for productivity improvements in the high-performance pipe threading and heat-treating arenas. And he’s fully subscribed to JFE’s branded “Only One/Number One” mandate.

“Concentrating on high-end products will be the policy,” Shimamoto said. “That will be the future.”

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