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Business

Nippon Steel's Thai venture soaring despite global glut

NSBS has posted record profits for four consecutive years.

BANGKOK -- On Oct. 10, a legion of steel industry chieftains including ArcelorMittal CEO Lakshmi Mittal and Posco Chairman Kwon Oh-joon gathered in the Ritz-Carlton Dubai to attend an annual general meeting of the World Steel Association.

The main topic at the conference was China's excessive steel production, which has caused tidal waves of cheap steel to wash into Asian markets. China is exporting more than 100 million tons of steel products every year, an amount equivalent to Japan's annual crude steel production.

But one steelmaker in Thailand has proved impervious to the damaging trend, which is the current bane of the global steel industry.

Bucking the trend

NS BlueScope Coated Products, or NSBS, a joint venture between Nippon Steel & Sumitomo Metal and Australia's BlueScope Steel, has kept growing despite falling steel prices due to a global glut.

NSBS President Somkiat Pintatham is bullish about the company's business outlook. He believes NSBS can retain customers by offering products with higher added value than imports.

NSBS manufactures and sells mainly steel sheets used as construction materials for houses, commercial facilities and infrastructure such as airports.

The steelmaker racked up 144 million Australian dollars ($109 million) in operating profit in the year through June 2016, up 41% from the previous year. The company reported record profits for four consecutive years since its foundation.

NSBS draws its strength from a marketing approach squarely focused on customer needs and an effective brand strategy.

Every quarter, the company organizes meetings around Thailand to socialize with local architects specializing in commercial facilities. These gatherings represent opportunities to build business relations with potential clients and establish the company's brand.

NSBS asks its clients detailed questions about their needs concerning price, durability, design and ease of use at construction sites. The company then recommends some of its approximately 20 products that are best for the customer.

NSBS also targets current customers. At a safety training center in its headquarters, NSBS employees advise construction company officials on issues concerning safety management, such as the way scaffolding is built and how handrails are installed. 

In explaining the company's highly customer-oriented marketing strategy, Somkiat stresses the importance of a soft approach in the business of selling steel.

NSBS has also been ahead of rivals in introducing long-term warranties covering 10- to 20-year periods in Thailand. Steel sheets tend to rust quickly in Southeast Asia due to the hot and rainy climate. 

To stay ahead of the competition, NSBS builds more durable products using techniques such as adding corrosion-resistant alloys, high-quality plating and special surface treatment. It offers long warranties as a show of confidence in product quality. Doing so keeps customers satisfied and coming back.

In response to surging profits, NSBS has decided to spend 12 billion yen ($114 million) to expand its annual production capacity by 50% to 470,000 tons. This is a unique move amid a global oversupply of steel sheets.

Built to last

Last year, NSBS started production and sales of SuperDyma, Nippon Steel & Sumitomo Metal's mainstay product, which is used mainly in white goods like refrigerators and air conditioners.

SuperDyma is a hot-dip alloy-coated steel sheet that boasts a greater level of corrosion resistance than conventional hot-dip galvanized steel sheets, according to Nippon Steel & Sumitomo Metal. The rate of rusting of SuperDyma is less than one-fifth of that of typical galvanized steel sheet products, the company claims.

Southeast Asian consumers are gaining purchasing power due to a growing middle class. Consequently, demand for high-quality household electric appliances is on the rise.

NSBS is trying to capitalize on the rising wealth among Southeast Asian consumers by increasing its supplies to Japanese makers of home electric appliances operating in the region, including Daikin Industries and Toshiba.

NSBS chief Somkiat uses bamboo as a metaphor for the company's growth strategy because the grass is strong at its root despite quick growth.

To keep advancing in the face of intensifying competition with low-priced imports from China and Vietnam, the company will further expand communication channels with customers, he said.

In 2013, Nippon Steel & Sumitomo Metal launched a joint plant in Vietnam with a major Taiwanese steelmaker. The plant manufactures cold-rolled steel sheets and magnetic steel sheets.

The leading Japanese steelmaker also plans by 2017 to build a plant in Brunei to manufacture steel pipes for oil and gas.

Taking the one-two

The company is ramping up its footprint in Asia for two main reasons. One is a growing wave of protectionism sweeping the global steel industry. An increasing number of countries are resorting to anti-dumping measures and safeguards to protect their steel industries from cheap exports from China.

India and Vietnam have adopted policies to guard their domestic steel industries.

Because of China's excessive steel supply, the number of anti-dumping and safeguard investigations hit a record 44 in the world in 2015, and the number is on the track to come close to that record this year.

The average amount of exports involved in each anti-dumping case is not large. But the cumulative effects of such steps could cause significant damage to exporters, warns a senior executive at Nippon Steel & Sumitomo Metal.

The Japan Iron and Steel Federation criticizes such measures as unfair actions. But Japanese makers, including Nippon Steel & Sumitomo Metal, are apparently inclined to sidestep such protectionism by expanding production in other Asian countries.

The other reason for Nippon Steel & Sumitomo Metal's expansion drive in Asia is Japan's shrinking domestic market. The company's crude steel output has declined 7% from the near-term peak in 2013 to 42.17 million tons.

The maker shut down one of the blast furnaces at its Kimitsu Works in Chiba Prefecture in March 2016, and it plans to do the same to another at Yawata Works in the city of Kitakyushu in 2021.

The company needs to establish a new business model in which it will export half-completed products made in Japan that will be completed overseas, according to Yuji Matsumoto, an analyst at Nomura Securities.

Australia's BlueScope Steel, which is well-versed in the Southeast Asian market for steel construction sheets, is an ideal partner for the Japanese company in this respect. A combination of Nippon Steel & Sumitomo Metal's cutting-edge steel manufacturing technology and the Australian partner's marketing prowess in the region can attract and retain an abundance of customers.

By using the NSBS business model as the core of its Asia strategy, Nippon Steel & Sumitomo Metal demonstrates how Japanese steelmakers can respond to the slump in Asia's steel market.

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