2016 New Year’s Message from Mr. Kosei Shindo, President to Employees
Jan. 4, 2016
Nippon Steel & Sumitomo Metal Corporation
To begin 2016, I would like to talk about our priority issues and how we are tackling them.
Looking back to 2015, oil prices dropped significantly and China’s economy showed more signs of slowdown. Lower oil prices depressed the energy sector and, combined with weakness in primary commodity prices, led to stagnation in commodity-exporting countries. China’s slowdown has also cast a dark shadow over ASEAN and other emerging economies that have strong economic ties with China.
Such changes occurred faster and with bigger impacts than initially expected. The global steel industry has entered the most severe phase in its recent history, a phase which is expected to continue for the time being. A downward turn in China’s steel demand, which began in 2014, resulted in a slowdown in worldwide steel demand. Some people even argued that “the global steel industry shifted into a mature stage in 2015.” China’s steel industry is burdened with excess capacity, excess production, and excess exports. Its excess capacity represents as much as about one-half of the global excess capacity, which is said to approximate 700 million tons. As China exported excess steel, prices of hot-rolled steel sheet in overseas markets dropped from over $400 at the beginning of 2015 to less than $300 in 12 months, to give an example from the ASEAN market. In addition, there is a trend for stronger protectionism around the world. Importing countries are filing dumping petitions or imposing safeguard measures. Looking at the supply side, competition was intensified in the high-grade steel segment. Production capacity increased further with new blast furnaces being blown in in China and Vietnam. Thus the steel market outlook in Asia is extremely uncertain.
Three years have passed since Nippon Steel and Sumitomo Metals merged into NSSMC in October 2012, with the most recent year characterized by the situation I have just described. But it is also important, I believe, that we have steadily generated synergy effects from business integration. In March 2013, we formulated our first medium-term management plan. Our achieving many of the plan’s targets for 2015 by fiscal 2014 was of crucial importance behind our becoming the No. 1 steel maker in the world in terms of market capitalization. Following such progress, we developed the current medium-term management plan, for fiscal 2015-2017, in March 2015. Under the new plan, we aim to enhance both domestic and overseas businesses, by leveraging our “technology,” “cost,” and “being global” as our core competitiveness so as to cope with our changing environment.
In the past two years, our overseas downstream annual production capacity has almost doubled to 19 million tons, thanks to the launch of some new overseas operations. In July 2015 we newly established the Global Business Promotion Division to facilitate group-wide support for smooth launches and improvement of those overseas businesses and to accumulate overseas management know-how for our greater and wider use. In October, the Nagoya Works resumed operation of the No. 1 coke oven, which had been shut down after accidents in 2014, and began to move forward to restore confidence from society.
Our steady efforts have enabled us to remain profitable while the performance of many of our competitors has turned into red under the influence of the rapidly deteriorating environment for the global steel industry. Although our profit level is not yet satisfactory, we have maintained our relatively advantageous position. In my view, this proves that we have been moving toward the right direction to become the “best steelmaker with world-leading capabilities,” as defined in our Mid-Term Management Plan. Despite the imminent difficult conditions we are facing, I firmly believe that global economic and industrial development will drive long-term growth of global steel demand, including demand for high-grade and middle-grade steel products, our areas of strength. By keeping that in mind, let us now face the present extremely harsh environment, embrace our challenges, and make strong foothold toward the future.
So let me now talk about what we will do in 2015.
First and foremost, I would like to share with you all my determination that the NSSMC Group, as large as it is, must become more agile and stronger. This means that we must implement our planned cost-improvement facility optimizing measures, which include phasing out the Kimitsu Works No. 3 blast furnace operation, and we must realize maximum benefits out of the optimizing strategy. On top of that, given the current environment, we must make further progress in cost reduction and become more competitive. We also need a stronger balance sheet.
Having said that, do not let us be deterred from our major orientation as set forth by the 2017 Mid-Term Management Plan, and enhance each of the measures. The four key points are as follows.
The first point is to promote and enhance our domestic and overseas businesses, both of which are indispensable like the two wheels of a cart. In our domestic business, we will seek for more synergy effects from the integration of domestic manufacturing bases and enhance their capability as mother mills in the steelmaking business, with a particular focus on equipment and workforce in allocating resources.
I am pleased with our progress in production stability and facility enhancement, although there is certainly room for further improvement. Let us continue promoting this. We will make effective and efficient investment by prioritizing our capital investment in new and existing assets. Our hiring and human resource environment will continue to be an important long-term issue. We will make sure of transmission of skills and know-how from experienced employees to newer ones. We will also flexibly and promptly cope with the requirements of oversea business expansion and other changes.
Concerning our overseas business, NSSMC has established a global supply network ahead of our competitors. I would like this strength of ours to be fully manifested as quickly as possible. In light of our global strategy by region and sector, we will pursue the optimal arrangements for the Group and each operating company. At present, many of our businesses that are in their start-up phase are facing a headwind from the deteriorating environment. I am convinced, however, that your efforts in those business areas, both in and outside Japan, will surely result in enhancing our overseas capability and presence. We deeply desire that our overseas business will truly become one of the two wheels of a cart, on a par with our domestic business, by tangible measures such as profitability. We are determined to achieve victories in tackling challenges, with an important contribution from our Global Business Promotion Division and our stronger overseas offices.
The second point is to enhance technological superiority. We have made it a point to develop technology in teams with our global top-ranking customers. This has to be further enhanced, as it is the backbone of our core competence. I would like our manufacturing, sales, engineering, and R&D divisions to coordinate and continue technological development, in addition to helping customers solve specific issues. Looking around the world, we cannot but find technological progress to be continually remarkable and sometimes it may compel us to drastically change conventional ideas. Keeping an eye on the latest trends in technology and other materials, we must smartly utilize the most advanced broad-based developments such as the Internet of things and Big Data. With these points in mind, we will clarify our priorities and accelerate our innovative development in products and processes.
The third point is to generate more synergy effects from the integration, which promises a great advantage to us, and strengthen the NSSMC Group’s total power. On schedule, in 2016, we will integrate our sales systems after careful planning. As many of our Group companies have already made progress in integration, I am counting on those companies to generate more synergy effects.
I also expect those of you who work in non-steel segments to continue pursuing synergies with NSSMC’s core business of steelmaking, to continue coping with the present changing environment, and to continue striving to achieve leading profitability in their respective business sectors.
The fourth and final point is the combination of compliance, safety, disaster prevention, and standardization. We must be dedicated to being recognized as a trusted corporate group by all stakeholders. This year we must thoroughly observe the requirements of compliance as well as risk management, which includes safety, environmental issues, and disaster prevention.
Concerning disaster prevention, we will learn and never forget the lessons learned from the Nagoya Works power failures and fire of 2014. This year, we will emphasize “soft” measures such as risk assessment and monitoring. We are implementing “standardization,” our corporate-wide measure to solidify the foundation to perform operations. This is critical in technological transfer and enhancement of workplaces and from the perspective of safety and of disaster prevention. Moreover, standardization will provide a base for utilizing opportunities and potentiality of the Internet of things, Big Data, or other IT innovations, which may lead us to technological breakthroughs in the future. We will consistently promote standardization from a long-term perspective.
There is an important concept that ties together the above four key points. That is corporate governance, or corporate disciplined control and management. A company with solid corporate governance must be an “open” organization in which concerns of people in the front lines of operations are promptly communicated to their managers, and in which bottom-up and middle-up functions are working effectively and efficiently. In order to be a company all employees will be proud of working for, let us combine our wisdom and create a new NSSMC culture.
In concluding my greetings, I must warn you that 2016 will historically be a harsh year for the steel industry. Please be well prepared. I believe that the current crisis can be regarded as an opportunity for NSSMC and Japan’s steel industry, which have comparative advantages in the context of world industry. I would like us to maintain our comprehensive advantages and continue to be a world-leading steelmaker. I am convinced that, given our technological superiority and our excellent human resources, we can do it. In order to firmly establish our position as “the best steelmaker with world-leading capabilities,” I expect that all of you, from those of you in the front line of operations to those of you who are directors, will tackle day-to-day tasks with a challenging spirit and a determination to resolve issues. Let us be brave and bold to face and overcome the present difficult situations.
