NKK CORPORATION: Annual Report 2001
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REVIEW OF OPERATIONS

     
   
Steel Division

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Executive Vice President
Atsuo Yajima

With annual raw steel production of approximately 20 million tons, NKK's Steel Division--a group of 87 companies--ranks No. 2 in Japan and No. 6 in the world.

        In fiscal 2001, the Steel Division posted a 7.6% increase in volume, to 20.8 million tons, as brisk first-half demand linked to the private sector at home and steady orders from abroad, particularly South Korea, Southeast Asia and the United States, offset the dampening effect of a slowing U.S. economy on export activity in Asia in the second half. The sudden downturn in demand intensified competition within the steel industry, holding the Steel Division's total sales to ¥1,298.4 billion, up 5.1% from the previous period. Rising costs, reflecting higher energy prices, affected profitability, but concerted efforts to streamline expenses led to operating income of ¥60.1 billion, up 6.0%.

      The Fukuyama Works was the primary recipient of the ¥19.0 billion that NKK earmarked for capital investment in fiscal 2001. We introduced the world's first Zero-Slag Steelmaking Process--a method that will slash slag disposal costs, thereby improving basic oxygen furnace productivity and boosting output. Consequently, the Fukuyama Works has established an annual output capacity of 10 million tons and, as the showcase facility of our 20 million ton global steelmaking network, boasts world-class production and efficiency ratings.

      To clear competitive hurdles, NKK seeks to forge dynamic alliances that foster efficient business development and secure revenues. To this end, the Corporation concluded a cooperative agreement with Kawasaki Steel related to joint logistics, maintenance and procurement. NKK expects this agreement to yield cost-cutting effects of approximately ¥5 billion.

      Looking ahead to business integration with Kawasaki Steel, we anticipate early realization of reduced costs and improved fiscal results.

Percentage of Net Sales for Fiscal 2001
   
     

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Charging hot metal to basic oxygen furnaces at the Fukuyama Works
Highlights of Cooperation



Sheets and Plates

Sales of sheets and plates in fiscal 2001 grew 1.8%, to ¥786.4 billion, reflecting increased private capital spending and higher automobile production in Japan and favorable first-half demand in the United States and Asia. These factors compensated for a low level of investment in domestic public works projects.

      NKK successfully applied nanotechnology to the development of an 80 kilogram force per square millimeter high-tensile strength steel that offers good formability. Sales of this product to a major domestic automaker remain steady.

      During the year in review, we also reinforced our ties with National Steel Corp. in the United States, through an agreement emphasizing mutual cooperation in R&D activities. Underpinning our international business strategy to build a global supply structure, this R&D arrangement will allow us to utilize leading-edge high-tensile strength steel production technology, surface-treatment methods and other proprietary capabilities in accelerating the development of new products at National Steel, and thereby meet the multifaceted requirements of our major customers, such as automakers, more quickly. Moreover, access to National Steel's tailor-welded blank production technology and other automotive component-related processing technologies, and to its highly competitive production method for construction-use galvalium steel sheets, will complement our own product development capabilities.

      We are also applying our expertise to the creation of environment-friendly products, with a view toward recycling, conserving energy and resources and reducing substances that harm our natural surroundings. We seek to foster new business opportunities that take full advantage of powerful rolling equipment capable of making the world's biggest steel products, and our ability to manufacture a wide variety of materials, including ordinary steel, specialty steel, stainless steel, titanium-clad steel plates and steel plates clad with other metals.

      In April 2001, NKK began discussions with Kawasaki Steel and Thyssen Krupp Steel AG on a global, three-company strategic alliance. By forming internationally cooperative ties with Kawasaki Steel and Thyssen Krupp Steel, we will be able to extend better service to customers pursuing their own globalization activities.

 

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Cold-rolled sheets at the coil yard

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Continuous galvanizing line at the Fukuyama Works



Bars and Shapes

Sales of bars and shapes in fiscal 2001 jumped 10.8%, to ¥126.2 billion. An upturn in market conditions, which mirrored favorable construction demand, peaked around the fiscal half-year point and began to weaken, but sales were supported overall by a rally in domestic capital investment in the first half and by economic recovery, especially in Asia.

      Online accelerated cooling equipment for shapes (OLAC S), installed in the large-section mill at the Fukuyama Works, has facilitated sophisticated control of systems and materials. Resulting improvements in the strength, toughness and formability of steel have led to the development of shapes with innovative features.

      In fiscal 2001, we used OLAC S to precisely control the rolling conditions of a new H beam, and successfully developed a quake-resistant H beam boasting twice the tremor tolerance of conventional products. The steel used for this product is approximately 10% more durable and four times more shockproof than previous products, making it ideal for application in girders for steel-reinforced buildings.

 

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Online accelerated cooling equipment
for shapes (OLAC S)

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Quake-resistant H beam




Pipes and Tubes

Fiscal 2001 sales of pipes and tubes fell 7.4%, to ¥89.0 billion, primarily because a portion of seamless pipe sales was excluded from the Corporation's consolidated performance following the establishment of NKKTUBES, a new joint venture accounted for under the equity method.

      NKK was the first steel manufacturer to undertake production of pipes and tubes in Japan. Maintaining a solid presence, we have established an integrated control system that encompasses all stages, from production of crude steel to finished products, and ensures manufacturing and marketing of high-quality, high-precision pipes and tubes.

      In fiscal 2001, the Japanese government initiated fewer civil engineering works, a decision that contributed to lackluster business conditions that lasted throughout the year. Capital spending by the private sector, however, particularly on IT-related endeavors, picked up and buoyed demand overall. Abroad, a positive economic climate in Asia boosted demand in the first half of the year, but in the second half the faltering U.S. economy triggered an adjustment phase in that country as well as in Asian nations, precipitating an downturn in the operating environment.

      Seeking to fortify the Groupwide operating foundation, we spun off the seamless pipe division from the Keihin Works and, in August 2000, established a joint venture, NKKTUBES, with Siderca S.A.--the core company of the Techint Group--to make and market seamless pipes.

      Benefiting from the experience of its parent companies, NKKTUBES came onto the scene with globally competitive products for major petroleum companies--the primary market for seamless pipes. NKK's R&D capabilities and brand power are underpinned by high-quality production technologies, premium joints and other achievements, while the Techint Group provides excellent cost-competitiveness and access to the world's largest seamless pipe production capacity. With manufacturing and marketing bases in Japan and around the globe, NKKTUBES boasts the strongest seamless pipe supply structure in the world.

      Drawing on Groupwide synergies, NKKTUBES will continue to develop its operations in Japan and abroad. While the establishment of the joint venture reduced some revenues from consolidated results, it contributed handsomely to consolidated operating income.

 

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Manufacture of a seamless pipe

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