NKK CORPORATION: Annual Report 1998
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N ew Medium-Term Management Plan

The Steel Division, leaner, stronger and more competitive as a result of restructuring in recent years, embarked on a new three-year management plan. The plan includes strategic sales that utilize our special strengths in specific products and fields; coordination among divisions and group companies for intensified marketing in key fields of construction; coordination between manufacturing and sales departments to upgrade product quality, delivery, and cost-competitiveness; increased exporting to Asian markets and materials supply to our Thai joint ventures to help enhance Asian operations; and active promotion of short-term projects tied to plant operations and next-generation R&D projects, including basic research on new processes. Valuable feedback from these activities is helping to accelerate implementation of the plan.

R eview of Fiscal 1997 Operations

Domestic crude steel production amounted to 102.8 million tons, an annual increase of 2.0 million tons. The continued economic downturn and fiscal cutbacks led to a sharp decline in housing construction and public works projects. Demand from manufacturing sectors other than shipbuilding either stagnated or declined. Exports increased, however, stimulated by the yen's lower exchange rate and strong demand from both the United States and Southeast Asia, despite Asia's economic setbacks in the year's second half. The government's raising of the consumption tax to 5% in April led to a sharp decline in demand and increasing inventories from April through June, following a period of vigorous demand just prior to the tax increase. Despite reduced production by steelmakers, steadily declining domestic demand left inventories high and increased slightly during the year. NKK's crude steel production reached 11,057,000 tons, an increase of 326,000 tons.


Bohai NKK Drill Pipe plant and its opening ceremony in February 1997


O verseas Operations

National Steel Corporation, NKK's U.S. subsidiary, achieved record sales, profit and shipments in its fiscal 1997, which ended December 31. Net income reached $214 million, an increase of $160 million. The company improved its financial standing and increased shareholders' equity to 34%, a sharp rise of nine points.

Bohai NKK Drill Pipe Co., Ltd., a Chinese joint venture, steadily expanded production after launching operations in February 1997. The company expects to reach full-capacity output of 16,000 tons in fiscal 1998. NKK's other Chinese joint venture, Fujian Sino-Japan Metal Corporation, began production and sales of tinplate in April 1998.

Thailand's first cold rolling mill, constructed by Thai Cold Rolled Steel Sheet Public Co., Ltd. (TCRSS), came on line in June 1997. TCRSS is a joint venture owned 52% by an NKK-led Japanese consortium and 48% by the Sahaviriya Group and other Thai parties.

The TCRSS plant, which has an annual capacity of one million tons, produces cold rolled steel sheets in thicknesses ranging from 0.18 mm to 3.0 mm and in widths ranging from 600 mm to 1,550 mm. Products are supplied to Thai manufacturing industries, including locally based Japanese automakers and electric appliance manufacturers. Annual demand, currently 1.3 million tons, is expected to grow 7% annually to 2.1 million tons by 2000. Initial monthly output of 20,000-30,000 tons will increase gradually to full capacity in three years.

TCRSS, along with the hot rolling mill of Sahaviriya Steel Industries Public Co., Ltd., to which NKK provides technical assistance, and the electro-galvanizing line of Thai Coated Steel Sheet Co., Ltd., another NKK joint venture, are supporting the Sahaviriya group's drive to become Thailand's leading integrated producer of steel sheets.


Fujian Sino-Japan Metal, a new tinplate joint venture in China

Opening ceremony of TCRSS in April 1998

E nvironmental Initiatives

The company achieved a number of milestones while pursuing its longstanding commitment to environmental responsibility in fiscal 1997.

The Fukuyama Works was certified in March to be in full compliance with the ISO 14001 series of environmental management system standards, thereby bringing all of NKK's steelworks under compliance with this stringent international standard, which stipulates the use of voluntary, self-enforced systems and procedures for environmental management.

Working in partnership with the Japan PVC Environmental Affairs Council and the Plastic Waste Management Institute, we began operating a research facility to test the safe recycling of waste polyvinyl chlorides (PVCs) at the Keihin Works in the fall of 1997. The pilot plant employs a rotary-kiln furnace, hot-blast generator and gas processor to remove chlorides during pretreatment, recover and reuse hydrochloric acid, and reuse the processed waste as an iron-ore reducing agent in blast furnaces.

We succeeded in developing a new "slag-less" steelmaking process by applying two advanced technologies -- a low-silicon ironmaking process and a hot metal dephosphorization process in a basic oxygen furnace (BOF) -- at our Fukuyama Works. The process, which will also be used at the Keihin Works, offers advantages such as improved steel yields, decreased consumption of ferro-alloys in BOFs and the production of ultra-clean steel.


NKK's Fukuyama Works, which acquired ISO 14001 environmental management system certification in March 1998

Flow chart of the polyvinyl chloride recycling system

banner ew Products and Technologies

The Steel Division continued to enhance NKK's profitability and competitiveness by developing promising new products and technologies.

We commissioned a laminated steel-sheet production facility at the Fukuyama Works in October 1997. The facility uses a continuous process to plate and laminate a special polyester film to both sides of tin-free steel sheets, giving them excellent formability for use in two-piece beverage cans that preserve flavor much better than conventional substitutes. The process is environmentally friendly because it uses neither lubricants nor cooling agents; the cans do not need to be washed, eliminating wastewater, and carbon dioxide emissions are minimized.

We began operating a new processing center at our Fukuyama Works in July 1997 to exclusively manufacture new heavy-steel tubular products for structural applications in construction and civil engineering projects. Steadily growing demand and promising prospects for these products in recent years prompted construction of this dedicated facility, which raises production efficiency, reduces costs, and enhances quality-assurance, delivery and customer service for proprietary, value-added products, such as NT columns, NKK Nejeal, NKK Eagle and NKK Pillars.


Laminated steel sheet production facility at Fukuyama Works

New processing center for heavy-steel tubular products completed in July 1997

Also noteworthy was the installation of a new system for low-cost, fully automated operation of overhead cranes at the cold strip mill of our Fukuyama Works. Based on a system we introduced in 1994 for precise swing-dampening and positioning control, the new system offers anti-twisting and other improvements for existing and new cranes. Pending successful testing, systems will be installed by the first half of fiscal 1999 for nine additional cranes at the Works, where it is expected to reduce manpower requirements by the equivalent of 40 operators.

New products added during the year included a hot-rolled titanium-clad steel sheet, which we marketed intensively. The product can replace titanium sheets used widely in small chemical tanks, thereby helping to reduce consumption of titanium, a costly rare metal. It also has promising applications in offshore steel-hull structures, bridges, food storage tanks, chemical industrial equipment and power plant smokestacks.

We also expanded marketing of our proprietary SP-700 titanium alloy through an agreement with Ohio-based RMI Titanium Company, which was concluded with the help of NKK Titanium USA, our new U.S. subsidiary. SP-700 offers superior hot-forming characteristics that reduce production costs and expand the range of applications for titanium alloys. The prospects are very good for expanding its market among American and European aerospace companies, which, along with other industries, use titanium alloys because of their minimal weight and high strength. Increased demand for commercial applications, such as golf-club heads and other consumer products, is also expected.

RMI, with NKK's technical support, will exclusively manufacture SP-700 at its facilities in the Americas and Europe. We will pursue continued successful development of the Asian market for mill products that we make with ingots procured from RMI. The marketing partnership combines our versatile titanium development expertise with RMI's wide-ranging manufacturing technologies and strengths as the world's second-largest titanium producer with a 64% market share in titanium flat products for aerospace.


Automatic crane control system installed at Fukuyama Works' cold strip mill

Head plate made of titanium-clad steel sheet

Conclusion of NKK business tie-up agreement with RMI Titanium Company to develop demand for SP-700 titanium alloy

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