Nippon Steel Corporation History

Company Perspectives:

Nippon Steel continues to build on its proud technical heritage and its ability to supply a diversity of materials, equipment, and services while boasting of the world's cleanest and most environmentally advanced production facilities.

Company History:

As the spearhead of Japan's economic transformation after World War II, Nippon Steel Corporation rose from virtual annihilation to a position of world leadership in the space of 25 years. With Japanese shipbuilders, automakers, and other heavy steel consumers achieving prominence in world markets, Nippon Steel enjoyed annual sales gains of 25 percent and more during the late 1950s and the 1960s and, by 1975, was the world's largest steelmaker. In the waning years of the 20th century, however, neither Japan's domestic economy nor those of the other developed nations have need of the enormous steel supply they once did. As a result, Nippon faced problems of static demand and fresh competition from countries such as South Korea, busily forging their own "economic miracles."

Like other of the world's steelmakers, Nippon drastically reduced capacity after the oil crisis of 1973-1974 and followed the example of other Japanese industrial powers in diversifying from basic commodity products toward specialty steels and wholly unrelated activities. Nippon Steel continued to rank as the world's top steelmaker in 1996. After a succession of retrenchments in the 1980s and 1990s, the company cut billions of dollars in costs, but was also expected to downsize itself out of the global industry's top spot by 1998. Although steel production continued to constitute more than two-thirds of Nippon's sales in the mid-1990s, the company had also diversified into industrial engineering, chemicals, nonferrous metals, and ceramics.

Late 19th Century Origins

The history of Nippon Steel closely parallels, and in some cases is identical with, the history of Japanese steel as a whole. In the centuries of isolation before the opening of trade with the West in the 1850s, Japan had manufactured what little steel it needed by an ancient method of smelting adequate to the demands of a pre-industrial economy. Prodded by the need to defend itself against the incursions of Western steamships, the Japanese government lifted its ban on the production of large ships in 1853, and a number of dockyards soon sprang up around the country, all of them in need of unprecedented amounts of steel. In 1857, Japan's first blast furnace was installed near the Kamaishi iron mines, an accomplishment that still left the Japanese 400 to 500 years behind the West in metallurgy. The Kamaishi furnaces were successful, however, and the Japanese government nationalized them in 1873 to hasten the development of this basic constituent of an industrial economy.

In its race to catch up with the Western powers, Japan faced a number of formidable obstacles. Not only was the country without engineering expertise, it also lacked all but trace amounts of coking coal and iron ore, the key ingredients of iron and steel. Its mineral poverty would later play a critical role in Japan's foreign policy, but in the early years of its steel industry the first need was for technical guidance. Most of this was supplied by Germans, in particular Curt Netto, professor of engineering at Tokyo University from 1877 to 1885, and Adolf Ledebur, another professor of engineering who was instrumental in coordinating the work of German design firms on behalf of Japan's early steel mills. Under the tutelage of these and other German experts, Japan soon developed its own circle of metallurgists and engineers, including, most notably, Kageyoshi Noro and Michitaro Oshima. When the Japanese government renewed its commitment to steel with the opening of a vast new plant at Yawata in 1896, its construction was entrusted to a German firm and Michitaro Oshima was named managing director of the newly created Imperial Japanese Government Steel Works at Yawata. The Yawata works became the nucleus of today's Nippon Steel.

The Yawata works did not get under way until 1901, when its target for the year's production was 60,000 tons of steel. In comparison, U.S. steel capacity in 1901 was ten million tons. Yawata's primary customers were shipbuilders and weapons makers. The state of Japan's armed forces prompted the government to take a direct role in the development of its steel industry and pour its resources into the nascent steel works at Yawata. Even so, production at Yawata was poor at first, with many technical failures during the early years. By 1904 most of these difficulties had been overcome, and Yawata was running a smooth, if modest, operation.

Quest for Raw Materials Dominates Early 20th Century

Having borrowed the technology it needed from the Germans and the English, Japan faced a second and more intractable problem--its lack of raw materials. The dominant steelmaking nations, chiefly the United States, England, Germany, and France, had achieved their positions with the help of native supplies of iron ore and coking coal. Japan had practically none and, with the primitive modes of transport then available, believed that it would never become an industrial power without taking steps to secure convenient and stable supplies of these basic ingredients. Its poor supply of raw materials played at least a contributing role in the growth of Japan's territorial claims in the first half of this century. Both of its closest neighbors, Korea and China, were rich in iron ore and coal, and as early as 1910 Japan had formally annexed Korea and was jockeying for position in northern China. In the following decades Japan would take what it needed from these two countries while also shifting a significant amount of its steel production to these countries.

Japan's steel industry remained incapable of supplying the country's urgent need for steel for years. In 1913, production at Yawata reached 200,000 tons of crude steel, which was 85 percent of all the steel made in Japan but less than 30 percent of that needed by the nation's growing shipbuilding and munitions industries. World War I provided an important stimulus for all segments of the Japanese economy. Shipping, railroads, electrical industries, and Japan's now-numerous manufacturers all required far more steel than the Imperial Works could supply, and even the gradual appearance of privately owned steel companies could not close the gap. The country remained precariously dependent on foreign sources of pig iron, scrap iron, coal, and iron ore as well as finished steel products.

Great Depression Spurs Six-Company Merger

The Great Depression added a fresh impetus to Japan's aggressive foreign policy. Military leaders were inspired by a rising tide of ultraconservative political sympathy to demand a more rapid pace in Japan's continental expansion. In such a climate, the country's relatively backward steel industry became all the less tolerable, and in 1934 the Japanese government took a major step toward finally gaining self-sufficiency in steel. The Imperial Works at Yawata was merged with six leading private steelmakers--Wanishi, Kamaishi, Fuji, Kyushu, Toyo, and Mitsubishi&mdashø form Japan Iron & Steel Company, Ltd., which was about 80 percent owned by the government. At the time of its formation, Japan Iron & Steel's crude steel capacity was estimated at 2.12 million tons, about 56 percent of the total for Japan. Under its first president, Reisaku Nakai, Japan Iron & Steel immediately began an ambitious and highly successful expansion of its facilities. Two plants were completely overhauled and given much larger blast furnaces, and a new mill was added in northern Korea near plentiful sources of iron and coal. With Korea and Manchuria now supplying more than 50 percent of Japan's coal and much of its iron ore, an increasing proportion of iron and steel production was moved to the mainland. This trend in turn seemed to confirm the military's insistence on further imperialist expansion. At Japan Iron & Steel, production was geared ever more closely to the needs of the military.

In a remarkably short time, Japan Iron & Steel and the rest of the industry caught up to the level of domestic steel consumption. By the beginning of World War II in 1939, Japan had become the world's fifth-leading steelmaker, with production reaching 5.8 million tons, and the industry was able to supply most of the needs of Japanese manufacturers, with the striking exception of armor plating. Yet even in its newfound strength, the Japanese industry was quite small by the standards of the United States, which in that year produced 28 million tons. Japan was not in a position, because of shortages of steel and a dozen other crucial resources, to wage a world war, and yet it was precisely this lack of materials that made war seem inevitable to the Japanese. Wartime steel production hit a peak of 12 million tons, but in that same year the United States alone launched 19 million tons of merchant shipping. At Japan Iron & Steel, only three of its many blast furnaces remained operable at the end of the war.

Postwar Reconstruction Brings Rapid Growth

A nation in ruins, postwar Japan was in need of vast amounts of steel. With the close cooperation and financial support of the United States, Japan Iron & Steel was rebuilt from the ground up according to the latest and most efficient designs. The new Japanese plants were larger, more completely integrated, and technologically more advanced than any others in the world--a complete overhaul that would not be possible for the older steel industries of Britain and the United States. Once given this technological edge, Japan Iron & Steel used its favorable labor rates to produce the world's best steel at the lowest possible prices for the next 30 years, until South Korea employed the same tactics to displace Japan in the 1980s.

Japan Iron & Steel met the same fate that most of the zaibatsu, combines of banks and industries, had suffered at the hands of the Allied occupation forces. In 1950 it was broken into four privately owned companies to promote American-style competition in the steel business. Of the four firms, the largest by far was Yawata Iron & Steel Co., Ltd., made up mostly of the plants of the old Imperial Works. Two others were much smaller specialty companies, but the fourth became Japan's second largest steelmaker, Fuji Iron & Steel Co., Ltd. Fuji and Yawata spent the next 20 years engaged in intense competition without ever forgetting their common origins, until in 1971 they again merged to form today's Nippon Steel.

The Korean War gave Japan its first inkling of the role it would play in the post-World War II economy, as the Western powers looked to Japan for basic industrial goods and supported its growth into a bulwark against Asian communism. In response, the steel industry in Japan embarked upon its First Modernization Program in 1956. In the first of these united efforts some ¥128 billion was invested, in the second ¥625 billion, and a third program initiated in 1961 used more than ¥1 trillion. The most important results of these enormous expenditures fall into three categories. First, beginning in the early 1950s, Japan led the world in its adoption of the basic oxygen furnace technology, arguably the most important steelmaking innovation of the postwar era. Second, in 1957 Yawata Iron & Steel was one of the first steel companies to install the LD converter, which consumes far less scrap iron during the steelmaking process than the formerly universal open-hearth method. Third, the Japanese pioneered continuous casting, the integration of steel production with the milling and shaping process, which until this time had been kept inefficiently separate. All three of these improvements eventually were adopted around the world, but the Japanese were the first to use them and were similarly advanced in their introduction of computer controls in the early 1960s.

In 1959, Yawata Iron & Steel's annual sales reached US $340 million, making it the largest industrial company in Japan. Fuji sales stood at US $250 million, or third largest. The bulk of the two companies' revenue was generated by domestic sales, as the Japanese economy still absorbed nearly all the steel the country could make. The trend in postwar Japanese consumption was away from military and railroad contracts and toward the burgeoning automobile, shipbuilding, and construction markets, which together were expanding the Japanese economy at the rate of about ten percent per year. In the next ten years Japan enjoyed the decade of its most spectacular growth and began the heavy exporting of goods that has made it the wonder of the economic world. Growth in the Japanese steel industry in the 1960s averaged 25 percent per year, and the country's paucity of raw materials no longer seemed the problem it once had. In the meantime, the more mature U.S. economy used a decreasing amount of steel, and the U.S. steel industry fell irretrievably behind the Japanese.

The end of the 1960s saw another leap in worldwide demand for shipping tonnage, mainly to ferry oil, and the Japanese steel industry agreed to spend the unprecedented sum of ¥3 trillion on yet another round of capital improvements. The two chief descendants of the old Japan Iron & Steel, Yawata and Fuji, announced in 1969 that they were to re-merge and form a new steel giant called Nippon Steel. Many other former zaibatsu holdings had similarly gravitated back together. The new Nippon Steel had combined revenue of about $2.3 billion, making it Japan's largest business of any kind and second only to U.S. Steel Corporation among world steelmakers. Top management was carefully divided between Shigeo Nagano from Fuji and Yoshihiro Inayama from Yawata, but for a number of years there was factional bitterness between the newly merged partners.

Global Energy Crisis of 1970s

At its height in the early 1970s, Nippon Steel's 80,000 employees directed a network of furnaces and mills capable of producing 47 million tons of crude steel per year, or four times the wartime capacity of Japan as a nation. It was hoped that combining the two great steelmakers would eliminate duplication of effort, increase scale efficiencies, and help pump up the steel industry's thin bottom line. The 1973-1974 oil crisis and the changing nature of the world economy rendered these hopes vain, however. The oil crisis brought to an abrupt halt the booming market for Japanese shipping, approximately quadrupled the cost of Nippon Steel's power and fuel, encouraged the construction of lighter automobiles containing less steel, and in general dragged the world's heavy industries into a long slump. The effects on Nippon's performance were immediate. Fiscal year 1975 showed a paltry profit of $50 million on declining sales of $7 billion, and by 1977 production was down to 32 million tons and nine of the company's 25 furnaces had been shut down.

Nippon's fortunes were also affected by Japan's changing place in the world economy. By 1975, when Nippon passed U.S. Steel as the world's largest steelmaker, Japan was no longer a young industrial nation requiring vast amounts of steel to build its infrastructure and heavy export goods. Similarly, the developed Western nations upon whom Nippon depended for export sales were all well into the postindustrial age; their need for steel was essentially static and increasingly weighted toward various specialty products. The oil shock only accelerated a trend toward reduced steel usage and Third World competition.

The combined impact of these events on Nippon Steel and the world steel industry was devastating. Worldwide, steel employment dropped 43 percent between 1974 and 1987. At Nippon Steel it was halved in the same period, and overall capacity was cut back from 47 million tons to about 27 million in the mid-1980s. The recession of the early 1980s was especially hard on Japanese steel, which as a whole reported losses in 1983 for the first time in many years. Four years later Nippon and the other leading Japanese steelmakers all showed a year-end loss, the first time that had happened since World War II. The next few years offered a mild recovery, with national production reaching 108 million tons, still less than the peak year of 1980 and not significantly greater than what it had been 20 years earlier. Nippon managed a return to the two percent to three percent profit margin it has traditionally shown.

Adjusting to New Realities in the 1980s

Nippon's response to the erosion of its markets has been typical of large Japanese combines. While cutting expenses to the bone and shedding excess labor (generally by attrition and in the form of employee "loans" to other companies), Nippon also moved swiftly into an array of new fields. To its core steelmaking, the company added nonferrous metals, a wide variety of heavy construction projects, and a catch-all grouping of new materials development. Nippon used this latter category to range far afield, launching an amusement park called Space World, a silicon wafer plant, and a U.S. venture to manufacture notebook computers.

Notwithstanding these diversifications, steelmaking continued to constitute more than two-thirds of Nippon's business. In the late 1980s and early 1990s, the company adopted new production methods and developed innovative products. In response to competition from minimills, which used electric furnaces to process ferrous scrap, the company accumulated shares in more than a dozen of its upstart competitors. Internally, the integrated giant adopted its own scrap-melting process to increase productivity and licensed the Romelt process to reduce costs and pollution. Nippon also increased its presence in the U.S. steel market through a number of substantial joint ventures with Inland Steel Industries, in which it, not coincidentally, owned a 13 percent stake. Nippon Steel stepped up the pace of international investment, often through joint venture, in the early 1990s, focusing especially on emerging economies like Thailand, India, Brazil, and China.

Contrary to most analysts' predictions, however, Japanese steel production actually increased in the late 1980s and early 1990s, as the country's auto and construction markets flourished. Nippon Steel's mid-decade reorganization, which had cut US $3 billion in costs by 1987, helped it recover from a US $84 million loss in 1987 to record a US $700 million profit in 1991. Thanks to its preemptive reorganization, Nippon Steel maintained its profitability until 1992, when Japan's "bubble economy" burst. At the same time, the rising yen made Japanese exports less competitive on world markets.

Led by 35-year company veteran Takashi Imai, who advanced to president in 1993, the company undertook a second major restructuring. By 1997, Nippon Steel expected a combination of reengineering, employee reductions, and operational rationalizations to cut US $3 billion in expenses. As it had in the past, the company honored its lifetime employment clause by permanently "loaning" workers to affiliated companies, retraining them for new jobs, or via early retirement buyouts. In total, the steelmaker expected to reduce its employment by one-third, from 30,000 to 20,000. Nippon Steel also implemented an automated computer shipping network and reduced overhead by negotiating reduced raw materials and energy prices. As a result of its downsizing, the company achieved its first annual profit in three years in fiscal 1996 (ended March 31). Nippon Steel was the only of Japan's "big five" steelmakers to do so. But the company's downsizing had another, perhaps unexpected, effect. In 1995, New Steel's Bryan Berry noted that Korea's Pohang Iron and Steel Co. (Posco) would likely surpass Nippon as the world's largest steelmaker in 1998.

Principal Subsidiaries: NS Tek, Inc. (U.S.A.); NS Kote, Inc. (U.S.A.); NS Pipe Technology, Inc. (U.S.A.); NS Sales, Inc. (U.S.A.); Nippon Steel Metal Products Co., Ltd. (95.4%); Nittetsu Steel Drum Co., Ltd. (57.8%); Nippon Steel Welding Products & Engineering Co., Ltd. (68.2%); Nippon Steel Bolten Co., Ltd.; Nippon Tubular Products Co., Ltd.; Fuji Tekko Center Co., Ltd. (51%); Nittetsu Corrosion Prevention Co., Ltd. (54.2%); Nittai Corporation (60%); Chukyo Seisen Co., Ltd. (80%); Nippon Steel Chemical Co., Ltd. (57.1%); Nittetsu Cement Co., Ltd. (55%); Chemirite, Ltd. (U.S.A.; 77.9%); Kankyo Engineering Co., Ltd. (55%); Nittetsu Electrical Engineering & Construction Co., Ltd.; Nittetsu Plant Designing Corporation; Electro-Plasma, Inc. (U.S.A.; 76%); Nittetsu Transportation Co., Ltd. (86.4%); Nittetsu Transport Service Co., Ltd.; Nittetsu Ryutsu Center Co., Ltd. (60%); Nippon Steel Shipping Co., Ltd. (76%); Nippon Steel Information & Communication Systems Inc.; Nippon Steel Life Planning Co., Ltd.; Tetsubiru Co., Ltd. (91.7%); Sakai Tekko Building Co., Ltd. (75%); Yuwa Sangyo Co., Ltd; Nittetsu Finance Co., Ltd.; Nippon Steel U.S.A., Inc. (U.S.A.); NS Invest, Inc. (U.S.A.); NS Invest II, Inc. (U.S.A.); NS Finance, Inc. (U.S.A.); NS Finance III Inc. (U.S.A.).

Further Reading:

• Berglund, Abraham, "The Iron and Steel Industry of Japan and Japanese Continental Policies," Journal of Political Economy, October 1922.
• Berry, Bryan, "The Top Two: Nippon Steel and Posco Trade Places," New Steel, December 1995, pp. 20-29.
• "Dumping Charges Miff Nippon Boss," American Metal Market, August 30, 1993, p. 2.
• Eisenstodt, Gale, "If at First You Don't Succeed," Forbes, January 20, 1992, p. 68.
• Furukawa, Tsukasa, "Financial Woes Plague Japanese Steelmakers," American Metal Market, December 1, 1993, p. 8.
• ------, "High Tensile Strength Steel Bows," American Metal Market, December 22, 1993, p. 8.
• ------, "Imai To Focus on Management," American Metal Market, April 29, 1993, p. 2.
• ------, "In Japan It's Godzilla vs. Mini-Godzilla," American Metal Market, December 6, 1994, p. 10A.
• ------, "Japanese Steel Restructures Under the Weight of the Yen," American Metal Market, October 4, 1994, p. 12A.
• ------, "Nippon Steel Launches Computerized Shipping," American Metal Market, April 16, 1993, p. 4.
• ------, "Nippon Steel Unveils Three-Year Restructuring," American Metal Market, March 31, 1994, p. 12.
• ------, "Nippon To Enter Scrap Recycling Arena, Boss Says," American Metal Market, July 22, 1993, p. 7.
  History of Steel in Japan, Tokyo: Nippon Steel Corporation, 1972.
• "Lights Out, Workaholics," Time, November 30, 1992, p. 22.
• "Nippon Steel: How a Lifetime Employer Displaces 10,000," New Steel, January 1995, p. 8.
• Scheier, Robert L., "Sun Sets on Nippon Steel's U.S. Notebook Subsidiary," PC Week, September 7, 1992, pp. 121-122.
• Weisman, Jonathan, "Firms See Door Closing on Japanese Vault," The Business Journal, September 7, 1992, pp. 1-2.

Source: International Directory of Company Histories, Vol. 17. St. James Press, 1997.