We will pursue world-leading technologies and manufacturing capabilities,
and contribute to society by providing excellent products and services
On April 1, 2019, we renamed ourselves as “Nippon Steel Corporation” (from Nippon Steel and Sumitomo Metal Corporation), to keep in pace with our advance as a growing global steelmaker with origins in Japan, and as a company incorporating a diversity of DNAs of people and companies. With the aim of securing a position of the best steelmaker with the world-leading capabilities, using our three key drivers of “technology,” “cost,” and “being global,” we have worked hard; 1) to rebuild our profit base by restoring our “strength in manufacturing*1” and enhancing our “strength in sales and marketing*2”; 2) to expand profit of the overseas business; and 3) to promote business innovation, standardization, and workstyle reform. These efforts are, as always, based on all possible measures related to safety, environment, disaster prevention, quality assurance, and compliance.
Our Group’s mainstay steelmaking business is expected to remain subject to an extremely harsh business environment partly due to the COVID-19 crisis, which has further aggravated the unprecedented environment of “higher raw material prices and lower steel product prices.” Despite being in such situation or because of this, we focus on early transition to an optimal production framework in Japan, enhancement of globally-competitive strategic products in terms of quality and quantity, and execution of initiatives to deepen our overseas business in response to the global trend of “local production and local consumption” and “favoring domestic production.” Our intended result is to enhance our profitability. In the post-COVID-19 world, we are determined to restore profitability in the parent steelmaking business whatever the ambient circumstances may be and aim at “becoming the best steelmaker with world-leading capabilities.” We are also tackling measures against climate change by development of innovative technology, thereby contributing to achieving Sustainable Development Goals (SDGs) adopted by the United Nations.
*1: Capability of stable production as planned in line with demand, with a focus on cost control
*2: Capability to realize appropriate pricing that matches our product value and contribution
In fiscal 2019 (ended March 31, 2020), the sluggish trend of the world’s manufacturing industry, prompted by the U.S.-China friction since the latter half of fiscal 2018, worsened and we experienced a significant decline in demand from the manufacturing sector – our mainstay customers. At the same time, China boosted infrastructure investment and continued high-level production of blast furnaces, and hence high prices of iron ore and other main raw materials took hold. As a result, we were plunged into the unprecedented environment of “higher raw material prices and lower steel product prices.” Natural disasters and other factors also affected our results. Due to continued loss of the parent company’s steelmaking business and recording of impairment losses, Nippon Steel Group’s earnings deteriorated significantly in fiscal 2019, to record a business loss of 284.4 billion and loss attributable to owners of the parent of 431.5 billion. As a brighter spot, with regard to restoring of our “strength in manufacturing,” our efforts to enhance line management capability in both operation and maintenance finally achieved some progress, as evidenced by a significant drop in the number of unscheduled operational and equipment events that tended to lead to production cuts, and improvement in variable costs.
Moving on to fiscal 2020 (ending March 31, 2021), there were initially good prospects of generating a profit in the parent company’s steelmaking business, driven by improvement in variable costs from stable production, enhanced measures for long-term contractual prices*3, and reduction in fixed costs (including repair costs and capital expenditures) by carrying out stringent selection. However, the COVID-19 outbreak sharply depressed demand for steel products, and output and shipments dropped substantially. As a result, operating results for the first half of fiscal 2020 are projected to be poor with the estimate of 150 billion as consolidated business loss.
We are taking appropriate steps concerning the impact of the spread of the COVID-19 infection. Responding to a significant drop in steel demand, we swiftly decided to temporarily stop production in six blast furnaces out of 15 in total and have adjusted manufacturing process operations according to the demand status of each product type with a focus on cost and in line with demand. Foreseeing potentially prolonged implementation of the COVID-19 measures, we are resolute in thoroughly taking infection prevention measures, based on the guidelines of the government, concerned organizations, and other factors, and are promoting on a company-wide basis a new workstyle that could further enhance business efficiency.
*3: Prices of order-made steel products for customers
Our projected medium- to long-term environment of the steelmaking business is as follows.
First, we anticipate an accelerating structural change in the steel market. On the demand side, the base demand in Japan may be depressed further, along with declining, aging population, while a decline in indirect exports has to be assumed due to reduction in trade flows, driven by the spread of nation-to-nation confrontation. Overseas steel demand is expected to increase over the long term, thanks to economic growth, associated with population growth. However, demand growth cannot be expected near term if investment in the energy sector, caused by the current oil price declines, remains depressed and if emerging countries continue to be in difficulties due to spread of COVID-19 and weaker currencies. The COVID-19 outbreak is likely to accelerate the manufacturing industry’s “local production and local consumption” and “favoring domestic production” and to further disrupt the globally-connected market, leading to a harsher environment for exports.
Looking at the competitive landscape, China is the biggest threat in the steel market, as we all know. On the back of swift resumption of post-COVID-19 economic activities, Chinese major steelmakers are expected to expand their relative predominance. Moreover, a decline in domestic demand in China – the world’s largest steel consuming country – and an increase in integrated steel production capacity in China’s coastal regions and ASEAN will intensify competition in the export market.
In sum, the COVID-19 pandemic is accelerating the pre-existing structural changes in the steel market, which makes our steelmaking business exposed to a dire environment.
Next I will address the social, industrial structural changes we anticipate. The rapid advance in IT, and automakers’ growing needs for lighter vehicles, emergence of electric vehicles and other vehicles with a new energy source, and autonomous driving and other developments, are likely to lead to advanced demand for performance of materials. In anticipation of competition with other materials, we have to maximize the potential of steel and respond to advanced needs. While initiatives for Sustainable Development Goals (SDGs) adopted by the United Nations are being undertaken, an important mission for the steel industry, in particular, is reduction in greenhouse gas and establishment of a circular economy, as measures against climate change. We need to appropriately address these megatrends of society and industry.
How will Nippon Steel restore its profit base and continue sustainable growth in the changing environment of the steelmaking business? Let me explain our policies and strategies.
- Stable production, price improvement, and reduction in fixed costs as primary factors determining profit
Concerning the restoring of our “strength in manufacturing” – a source of profit – we seek to make stability of our production completely embedded. Despite the sluggish demand environment, the improvement in long-term contractual prices has progressed, though somewhat less than expected, and we intend to make efforts for further improvement. We will also carry out the dual tactics of selection and concentration and reduce fixed costs (including repair costs and capital expenditures).
- Medium- to long-term business strategy: stringent selection of facilities, products, and businesses
1. Early transition to an optimal production framework in Japan and enhancement of competitiveness
The role of the Nippon Steel Group is to accurately respond with superior technology, products, and services to diverse needs and challenges of customers and society, such as for advanced performance of materials in the automotive industry and measures against climate change. Requirements for R&D and production capability have risen compared to the past. For us to prevail in global competition in the future, jointly with our customers, we have to be more sophisticated and improve our strength in development and technology, and raise the ratio of our strategic products, such as high-tensile steel sheets and electrical steel sheets, so as to be unrivaled by global competitors.
Our sources of strengths in development and technology lie in integrated blast furnace steelmaking. In order to maintain and advance these strengths, maintaining integrated steelworks at a certain level of production in Japan is a must. As mother mills, our domestic steelworks are the bedrock base that supports our global strategy, while securing cost competitiveness and generating profit. We will therefore invest in adopting new, powerful equipment in our major steelworks and increasing supply capacity of advanced strategic products. By concentrating production of high-value-added products, cost will be reduced. Along with execution of this measure, we cannot avoid stringent selection of products and facilities. Implementation of drastic measures, including the production facility structural measures announced in February 2020, is difficult and painstaking but we are determined to move forward certain measures, consider and implement additional ones, and enhance competitiveness of our domestic mother mills.
2. Enhancement of globally-competitive strategic products in terms of quality and quantity
We have expanded solutions concerning material development, utilization of processing technology, and other matters in response to customers’ needs, given that properties required for materials are now more diversified and advanced. We pride ourselves on making stable supply of high-grade steel products and enhancing their functions, contributing to customers and creation of value in society. These products include: high-tensile steel sheets, which enable energy saving due to their high strength and weight reduction; electrical steel sheets for Eco Cars and high-efficiency transformers; high-corrosion-resistance seamless steel tubes, used in drilling of natural gas and other energy resources; and steel products for the high-pressure hydrogen environment. In case of ultra-high-tensile steel sheets and electrical steel sheets, we have decided to build a new manufacturing facility to respond to demand growth from the automotive and electric power sectors and needs for higher-grade products. We thus intend to further enhance manufacturing capacity and product quality. By making use of our world-class scale and world-class technological prowess, we will proactively enhance globally-competitive, unrivaled, strategic products in quality and quantity, maximize marginal profit, and contribute to the creation of a sustainable society.
3. Deepening of overseas business, addressing to local production and local consumption
The global trend of “local production and local consumption” and “favoring domestic production” is expected to get stronger due to travel restrictions and global supply chain disruption, caused by the COVID-19 pandemic. We were ahead of our peers in establishing overseas production and sales bases, as well as a global production and supply framework. Going forward, with a focus on “markets where we see assurance of demand growth potential” and “areas where our technology and product capacity can be used,” we are committed to contributing to development in key countries and regions and to creating corporate value.
In the target countries and regions, we seek to collaborate with a major company or work on M&A in an agile, flexible manner and become an insider. In India in December 2019 we acquired an integrated steelmaker Essar Steel India, jointly with ArcelorMittal and made a fresh start as ArcelorMittal Nippon Steel India. We plan to steadily capture steel demand in India, which is expected to expand. We will also withdraw from businesses that cannot be returned to the black, those that have completed their roles, or those that are losing synergies, and redistribute and optimize management resources.
4. Innovative technology development as a response to climate change issues
Among the Sustainable Development Goals (SDGs), measures against climate change, such as reduction in greenhouse gas emissions and creation of a circular economy, are also critical challenges for the steel industry.
Nippon Steel has been working on CO2 emission reduction through the “Three Ecos” initiatives and “innovative technology development.” We are also making efforts to recycle 100% of plastic containers and packaging and to help create a circular economy , such as by use of by-product gas generated in steelmaking and reuse of waste water. Toward tackling climate change issues, we are recognized as playing a leading role in 1) formulation of the Japan Iron and Steel Federation’s long-term vision for climate change mitigation, “A challenge towards zero-carbon steel” (including development of hydrogen reduction steelmaking technology, which enables zero CO2 emission at the time of steelmaking); 2) use of the Life Cycle Assessment (LCA)-based environmental impact calculation method of the International Organization for Standardization (ISO) and the Japan Industrial Standards (JIS); and 3) a proposal to promote the “Creation of Sea Forests” and “Blue Carbon” (the carbon captured and sequestered by oceans and coastal ecosystems).
We also signed the statement of support for the Task Force on Climate-related Financial Disclosures (TCFD) and since 2019 we have disclosed the results of scenario analysis concerning the impact of climate changes in our business activities. In June 2020 we stated our agreement with the Challenge Zero declaration, announced by Keidanren, toward realizing a decarbonized society. Through this, we disclosed 10 specific challenges, including “development of hydrogen steelmaking process for zero emission” Moreover, we have established a cross-divisional committee, which began discussion on subjects such as individual companies’ scenarios for Zero Carbon Steel and R&D and technology adoption related to low CO2 emission technologies. We plan to disclose individual companies’ specific scenarios within fiscal 2020.
Our innovative technology development aims to respond to a future increase in global steel demand and simultaneously resolve climate change issues.
For the purpose of appropriately responding to greater fluctuation in the business environment and an acceleration of the speed of change, and of solidly implementing business strategy and sustainably raising corporate value, we are reforming our corporate governance, organization, and business management..
Concerning the corporategovernance structure required from the viewpoint of corporate governance, we made a transition from a “Company with an Audit & Supervisory Board” to a “Company with an Audit & Supervisory Committee” in June 2020. The objective is to enhance the supervisory function of the Board of Directors over management, and at the same time expedite and increase efficiency in management decision making by delegating part of the decisions regarding execution of important operations to the Representative Director and Chairman, and Representative Director and President..
In line with the revision in corporate governance structure and given the absorption of Nippon Steel Nisshin on April 1, 2020, we are in process of enhancing efficiency of the entire corporate organization and businesses, including the integration and reorganization of steelworks into six steelworks and streamlining of divisions and departments. In addition, with the aim at proactively using data and digital technology to strengthen our business competitiveness, a Digital Innovation Division (division to promote Digital Transformation, or DX) has been established. Enhancement of data management is another way to speed up decision-making, promote business and production process innovation.
We declare in our Management Principles that we are dedicated to pursuing world-leading technology and manufacturing capabilities, and to provide products and services that benefit society. This precisely echoes the concept of the Environment, Social, and Governance (ESG). I recognize that ESG initiatives are one of the priority issues and form part of the base that supports the very existence and growth of our company. We intend to steadily promote its execution and follow-up of our materiality in ESG issues, by checking the Key Performance Indicators (KPI), and strive to contribute to sustainable social development, as well as improvement of our corporate value.
I would like to thank all our stakeholders for their continued understanding and support of Nippon Steel Corporation.
Nippon Steel Corporation
Eiji Hashimoto, Representative Director and President