NKK CORPORATION: Annual Report 1998
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Operations Reorganized

      The Steel Division embarked on a medium-term management plan in 1997 designed to build on the competitiveness gained through implementation of the 1994-1996 "Strategic Restructuring Program" and develop a solid earnings base for the twenty-first century. The course of events, however, has proven less favorable than could have been foreseen. Domestic financial instability and economic upheavals in Southeast Asia resulted in a substantial worsening of both sales volumes and prices, and made it extremely difficult to maintain earnings.

      NKK responded to these changes in the business environment by formulating a new "Medium-Term Action Plan for Business Strengthening" during its fiscal 1998 budgeting process. This two-year plan features a one-year acceleration of the original medium-term plan and provides the Steel Division with concrete measures to restore profitability. Meanwhile, the division continued to solve other long-standing issues, including its withdrawal from the stainless steel sheet business in September 1998 and reorganization of the group's bars and shapes business in April 1999. These moves enabled it to reinforce its profit base during the year.

Fukuyama No. 2 Blast Furnace Restarted

      The No. 5 blast furnace at the Fukuyama Works has been in operation for thirteen years and, given the paramount importance of steel supplies, NKK began a relining of the No. 2 furnace in May 1997. This work was completed in April 1998.

      Restarting of the No. 2 furnace was delayed by weak steel demand, but on September 7, 1998, conditions were finally suitable for the blowing-in of the furnace. The return to operation of the Fukuyama No. 2 has enabled NKK to optimize its blast furnace utilization and iron and steel supplies. The No. 2 will reduce the load on existing blast furnaces and facilitate improvements in tapping efficiency and operational stability, which will help streamline operations and increase the longevity of other furnaces. In conjunction with the blowing-in of the No. 2, the billet continuous caster at the Fukuyama Works also began operations and will serve as a source of semis (billets) for NKK Bars & Shapes, an affiliated electric furnace steel producer.

      At the same time, new pulverized coal injection (PCI) equipment came on-line at the No. 2 blast furnace, making PCI technology available to all blast furnaces at the Keihin and Fukuyama Works. PCI uses pulverized coal in place of coke. In June 1998, the Fukuyama No. 3 blast furnace PCI facility set a new world record with a 266 kg/t PCI rate, outdoing the 250 kg/t rate previously thought to be the upper limit. The Fukuyama Works had previously set a PCI world record with 218 kg/t at its No. 4 blast furnace in October 1994.


photo Fukuyama Works' No. 2 blast furnace
(inner volume: 2,828 m3 )

The No. 2 blast furnace restarted on September 7, 1998.

Pulverized coal injection (PCI) facility for the Fukuyama Works' blast furnaces


Review of Operations in Fiscal 1998

      Domestic demand for steel was down substantially because of slumps in the markets for housing, automobiles, and durable consumer goods, and because of reduced demand from non-housing areas and industrial machinery manufacturers following sharp declines in corporate capital investments. Inventories remained at high levels with demand falling faster than supply. On the export side, volumes were up sharply in the first half of the year, but exports to the United States declined just as sharply in the second half.

      The result was a 12 million ton decline in Japanese crude steel production to 90.98 million tons, the lowest it has been in 27 years and the first time in five years it has been below 100 million tons. NKK saw its crude steel production reach a thirty-year low of 10.43 million tons, 620,000 tons off the fiscal 1997 level.


photo Granite City Works of National Steel


Projects Overseas

      NKK's U.S. subsidiary, National Steel Corporation, continued to strengthen its competitiveness in 1998. The U.S. steel market experienced a great deal of volatility during the year as a surge of imports caused prices to plummet, but National Steel was nonetheless able to post US$84 million in net profits. The company continued to pursue a high-addedvalue strategy and began construction of a new hot-dip galvanizing line to supply the automotive industry.

      NKK also made steady progress in its Southeast Asian operations. In June 1997, the Thai Cold Rolled Steel Sheet Public Co., Ltd. began operations as a Japanese-Thai joint-venture. It plans to produce 650,000 tons of cold-rolled steel sheets in 1999, with output growing to 800,000 tons by 2001. NKK, together with its partners in the country, Thai Coated Steel Sheet Co., Ltd. and Sahaviriya Steel Industries Public Co., Ltd., is providing powerful support for the establishment of integrated steel sheet manufacturing in Thailand.

      In China, NKK is an active participant in two joint-ventures. The Bohai NKK Drill Pipe Co., Ltd. was established in February 1997 to manufacture the pipes used to quarry natural gas, and is currently operating at its full capacity of 16,000 tons per year. The Fujian Sino-Japan Metal Corporation began operations in May 1998 as a supplier of tinplate to the Chinese food and beverage can market. It plans for an output of 60,000 tons in 1999.


photo Pickling line at Thai Cold Rolled Steel Sheet Public Co., Ltd. (TCRSS)

photo Bohai NKK Drill Pipe's new plant


New Products and Technologies

      The Steel Division continued to develop promising new products and technologies intended to improve its competitiveness and profitability.

      In March 1999 NKK was awarded the prestigeous Okochi Memorial Prize for its energy-saving regenerative burner reheating system. The system, which was designed for maximum heat recovery, features remarkably low emissions of nitrogen oxides and was the first of its kind to reach practical application anywhere in the world. NKK developed it to reduce carbon dioxide output and energy consumption. The basic technologies for the burner were completed in 1992; a total of 1,864 burners have since been installed in Japan.

      NKK has long been a frontrunner in the development of anti-seismic and cost-saving construction techniques and materials, including its highly regarded HYSC and Nejeal piles, Eagle poles, and NT columns. This year it added to the line-up with a new wing-shaped steel screw pile for use in building foundations. The screw pile is eco-friendly and its bearing capacity is far greater than conventional products, making it a strong competitor against concrete pilings.

      When it brought the "NK Super E-Core" to market in 1993, NKK became the first to successfully commercialize 6.5%-silicon magnetic steel sheets. Subsequent research has uncovered ways to vary the distribution range of the silicon content over the thickness of the sheet to create new properties such as ultralow iron loss under high-frequency conditions and low residual magnetic flux density. These findings were developed into the "gradient high-silicon magnetic steel sheet," which NKK became the first in the world to mass produce.

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

      The company expanded the market for its proprietary SP-700 titanium alloy through an agreement with Ohio-based RTI International Metals Inc., under which NKK Titanium U.S.A. was established as a new U.S. subsidiary to market the product. SP-700 offers superior hot-forming characteristics that reduce production costs and expand the range of application for titanium alloys. Since the January 1998 agreement, RTI, with NKK's technical support, has been exclusively manufacturing SP-700 at its facilities in the Americas and Europe. NKK has successfully developed the Asian market for mill products made with ingots procured from RTI, and will continue to serve this market.


Energy-saving regenerative burner reheating system

"NK Nejeal" pile uses screw joints to prevent landslides.

photo "Tsubasa" wing-shaped steel screw pile


Laying the Groundwork for the Twenty-first Century

      Looking out over fiscal 1999 and the next few years beyond, there would appear to be little hope of a rapid recovery in this market. The Japanese economy continues to experience deflationary pressures, and the prognosis for early recovery in Southeast Asia is not encouraging. Japanese crude steel production has fallen to about 90 million tons per year and, even with the renewed competitiveness achieved by the Steel Division as a result of earlier programs, the business environment will continue to be challenging. We have therefore formulated new managerial guidelines for the division that are designed to radically reorganize NKK's steelmaking, improve competitiveness, and ensure the excellence necessary to prevail in the intensified competition anticipated in the next century.

      First, we will move forward with efforts to consolidate steelmaking at our Keihin and Fukuyama Works, clearly articulating the roles that these two locations are to play, and improving the profitability of their operations. The Fukuyama Works will provide upward flexibility for our production capacity, while the Keihin Works will establish fixed levels of production at which it is able to streamline its operations and reduce its costs. Given its urban location, the Keihin Works will also spearhead recycling and eco-friendly technologies.

      Selected operational divisions will be reorganized as separate companies in light of their business strengths, and the NKK Group will be realigned so as to maximize consolidated results. Specifically, the galvanizing and color-coating operations of the Keihin Works were spun off in July 1999, as was the Toyama Works, which produces ferro-chrome and ceramic products. Electric-resistance welded and butt-welded pipe operations at the Keihin Works will be spun off in October 1999.

      NKK's Steel Division will improve its labor productivity by reducing its work force by 2,400 positions by the end of March 2000. This will bring its work force down from 9,100 at the end of September 1998 to an estimated 6,700.


photo Gradient high-silicon steel sheets feature ultralow iron loss under high-frequency conditions and low residual magnetic flux density ("NK Super HF Core," "NK Super BR Core").

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