Nippon Steel to End Joint Venture with China's Baoshan

In 2004, Nippon Steel Corp and Baoshan Iron & Steel established Baosteel-Nippon Steel Automotive Steel Sheets Co. (BNA), a joint venture based on equal investments. The partnership will end on August 29 when Nippon Steel sells its shares in BNA to Baoshan Iron & Steel. Currently, BNA accounts for about 70% of Nippon Steel's production capacity in China.

Since 1977, Nippon Steel has provided technical expertise for the construction of the Baoshan Iron & Steel Plant, China's first modern steelworks, in response to a request from the Chinese government. This project marked a significant milestone in modernizing China's steel industry and symbolized economic collaboration between Japan and China. The rapid growth of China's automotive industry in the early 21st century led Nippon Steel, Baoshan Iron & Steel, and Luxembourg's Arcelor (now Arcelor Mittal) to establish BNA in 2004.

China's Automotive Industry

Throughout the 21st century, China's crude steel production has surged. It now accounts for over half of the global output. This growth is not just in production capacity but also in technological advancements such as manufacturing automotive steel sheets. Additionally, the country has rapidly transitioned towards electric vehicles (EVs).

The Chinese government has implemented major initiatives to promote the adoption of electric vehicles. These include expanding charging infrastructure and offering purchase subsidies. However, the presence of over 100 EV manufacturers has led to an oversupplied market, resulting in intense price competition. This has given rise to low-priced Chinese cars, significantly challenging Japanese car sales in the region.

World Crude Steel Production in 2023 (millions of tonnes, World Steel Association):

• World Total: 1,892
• China: 1,019.1
• India: 140.8
• Japan: 87
• US: 81.4

Technology Disputes

Nippon Steel is renowned for its high-end materials, including high-tensile strength steel (HTSS) for automobiles and electromagnetic steel sheets for electric vehicle (EV) motors. In 2021, a legal challenge arose when Baoshan Iron & Steel was accused of infringing Nippon Steel's patents on electromagnetic steel sheet technology. As China's economy grows, the associated business risks are also increasing.

Reevaluation by Japanese Companies

Nippon Steel is progressing with its medium-to-long-term management plan, which includes structural reforms, rationalization, and the expansion of overseas operations. With a target of reaching a "global crude steel production capacity of 100 million tonnes," the company has identified India, ASEAN, and the United States as key strategic regions. 

Due to unprofitable operations and fierce price competition in China, Nippon Steel has chosen to redirect its management resources. The company is now focusing on the US, a market with a strong demand for high-quality steel, and India.

This strategic shift is not exclusive to Nippon Steel. Other Japanese companies involved in the automotive industry, such as Honda, Hino Motors, Bridgestone, and Teijin, are also downsizing or withdrawing from China. 

On the other hand, Nidec, a leading motor manufacturer, continues its operations in China, carefully navigating the intense local price wars.

Acquiring US Steel

On July 20, it was reported that Nippon Steel had appointed Mike Pompeo, the former Secretary of State under the Donald Trump administration, as an advisor. Reuters quoted a statement from Nippon Steel: "We look forward to working alongside him to further emphasize the ways in which Nippon Steel's acquisition of US Steel bolsters the country's economic and national security."

RELATED:

• Why Does Nippon Steel Want to Acquire US Steel?
• Mitsubishi Motors Exits China Production as More Companies Review Risks
• All Dissemblers: US Steel and American Distrust
• Nippon Steel Advances Hydrogen Technology to Cut CO2 Emissions

(Read the article in Japanese.)

Author: Hidemitsu Kaito