The Evolution of Nippon Steel and Where It's Headed

In Japan, for a while after World War II, steel was referred to as the rice of industry. This term was used in the sense that rice was indispensable for Japanese people's daily lives, and steel was at the heart of industry.

Steel supported the country's economic development as an indispensable materials industry for the production of automobiles, home appliances, and other products during Japan's period of rapid economic growth. Incidentally, after the end of the Cold War, semiconductors came to be called the rice of industry.

The Evolution of Japan's Steel Industry

Historically, Japan's iron and steel industry can be traced back to the Meiji Restoration. The Meiji government promoted government-led industrial development under the slogans of "wealthy nation, strong military," and "industrial development." 

One of the government-owned plants created as part of this effort was the Imperial Steel Works, Yawata. Established in Yawata, Fukuoka in 1901, it was the largest of its kind in Japan. In 1934, with the cooperation of the private sector, the company became Japan Iron & Steel Co. 

After World War II, with the dissolution of zaibatsu by the Allied command in Japan, the company was split into four: Yawata Iron & Steel Co Ltd, Fuji Iron & Steel Co, Ltd, Nippon Steel Shipping Co, Ltd, and Harima Refractories Co, Ltd. Then in 1970, Yawata Iron & Steel and Fuji Iron & Steel merged to create Nippon Steel Corporation (NSC). 

US Steel Acquisition

Two major news stories about NSC made headlines in Japan in 2024. NSC's announcement of its acquisition of United States Steel Corporation (US Steel) was the first. Just as significant, the second was NSC's announcement of the end of its partnership with China's Baowu Steel Group.

The acquisition of US Steel was approved at a special meeting of US Steel shareholders on April 12. Reports from the company said the deal would cost $14.1 billion USD. Meanwhile, negotiations continue with regulators, labor unions, and politicians opposed to the deal. 

US Steel was formed in 1901 through the merger of Carnegie Steel and Federal Steel. When it was founded, US Steel accounted for two-thirds of American steel production. Because it is such an iconic American company, there has been some opposition to the acquisition.

Striving to emulate US Steel as an ideal company, Nippon Steel had become a strong competitor by the mid-1970s. It was producing products of nearly the same quality as US Steel, the world's largest crude steel producer at the time.

'New York Begins at the World Trade Center'

The above caption was written on the cover of a leaflet that used to be distributed at the information desk of the World Trade Center (WTC). WTC was a symbol of Manhattan, New York for about 28 years from its opening on April 4, 1973, until its brutal destruction in a terrorist attack on September 11, 2001.

It is not well known that special steel made by NSC was used in the construction of WTC. High-tensile steel, which required state-of-the-art technology to manufacture, was used from the WTC's 9th to the 110th floors. Moreover, the 43,000 tons of high-tensile steel used for this purpose was not made in the United States but in Japan.

Japanese Steel and the World Trade Center

According to a 1978 Nikkei article by a former Mitsui & Co executive involved in this steel transaction, Yawata Iron & Steel (now NSC) would produce the steel. Then, Mitsui & Co would export it to Pacific Car and Foundry in Seattle. There it would be processed into semi-finished products for delivery to the Port Authority of New York & New Jersey. 

At the time, it was believed that only US Steel and Bethlehem Steel could produce this special steel. However, it turned out that Yawata Iron & Steel had the capacity to produce it as well. The Japanese product was chosen because it could be produced at a lower cost.

WTC was made of the most advanced steel materials of the time. However, it collapsed because the structure itself could not withstand the impact and heat of 800 degrees Celsius caused by the terrorist attack.

Considering that the Twin Towers were designed by Minoru Yamasaki (1912-86), a Japanese American, WTC had two deep ties with Japan. Its construction also coincided with the period when NSC surpassed US Steel in crude steel production. 

Now, NSC is exploring new opportunities through the acquisition and integration of its former mentor and rival. Meanwhile, NSC has ended its long-standing relationship with a Chinese steel company that was once its student and is now a rival.

China's Takeoff and NSC

Forty-seven years ago the Chinese government asked NSC to cooperate in the construction of a large-scale integrated steel plant. Then, in 2024, NSC announced its withdrawal from the joint venture with Baowu Steel Group. NSC's decision came amid Japanese automakers' ongoing sales struggles and withdrawals from automaking in China. 

The impetus for economic cooperation between Japan and China dates back to 1972. That was when diplomatic relations between the two countries were normalized.

Japan received a request from China for cooperation in the construction of a large-scale integrated steel plant in 1977. NSC agreed and the major project was set in motion. In 1978, then-Vice Premier Deng Xiaoping visited the modern facilities of Nippon Steel Kimitsu Works (NSC Kimitsu). His visit demonstrated the Chinese government's extraordinary desire to build a modern steel plant. 

This author once assisted in a seminar with Chinese dignitaries in the early 1980s. During that seminar, I accompanied a delegation on a tour of NSC Kimitsu. I remember well how surprised the visitors in Chinese tunic suits were when they saw a modern steel mill. It was their first exposure to a capitalist economy.

Japanese Steel Production in China

NSC provided generous cooperation until the completion of the No 1 blast furnace of Baoshan Steel Mill in 1985. This included not only the construction of facilities but also the transfer of technology and personnel training. NSC's support continued even after the subsequent expansion of the steel mill's scale with the second and third phases.

It should not be forgotten that Japan's Official Development Assistance (ODA), including long-term, ultra-low-interest yen loans, played an important role in financing the project.

Meanwhile, in the mid-1970s, China's crude steel production was only 25 million tons per year. Eventually, Baoshan Steel merged with other steel mills. Today it is the giant Baowu Steel Group, the world's largest steelmaker. In 2023, it produced 130.8 million tons of crude steel on its own.

The Rise of Baowu Steel

The modernization of the Japanese steel industry dates back to 1901. Yawata, the Imperial Steel Work, began operations then under the design and technical guidance of the German Gutehoffnungshütte Aktienverein (GHH). With this beginning, Japanese steelmaking technology improved rapidly and became world-class, both technologically and in terms of scale. 

China's steel industry embarked on a new reform and open-door policy of introducing capitalism under the one-party dictatorship of the Communist Party. It sought cooperation from Japan in the production of iron, an important element of industrial development. Now, Baowu Steel and other Chinese steel companies have become formidable competitors to Japanese steel companies in the global market.

Nippon Steel's Strategic Shift

Under these circumstances, NSC has ended its 47-year-long relationship with China. This decision is in step with many Japanese automakers withdrawing from the Chinese market, where electric vehicles (EVs) are becoming mainstream. 

The proposed acquisition of US Steel by NSC is a response to the major shift in the global automobile market from gasoline-powered vehicles to EVs. It also reflects NSC and US Steel's respective positions in the business life cycle.

Integration with US Steel is a natural move for NSC, which has completed its growth and maturity phases. It is time to take a new step forward to compete with growing Chinese steel companies. Moreover, integration with US Steel, the former leader of the global steel industry, is expected to bring key benefits. These include further penetration into the global market and production expansion through economies of scale.

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Author: Yoshifumi Fukuzawa

Yoshifumi Fukuzawa is a business consultant and former lecturer at Waseda University.