Japanese funding aids US steel industry
Chicago — After World War II, long before William Roesch became president of United States Steel Corporation, he visited Japan as an engineer helping to build the country's fledgling steel industry. Symbolic of the transformation of industrial relations between the two countries, US Steel has turned to Sumitomo Corporation, a now-powerful Japanese steel producer, for assistance in building a mill in Gary, Ind.
In much of the American steel industry the master has become the pupil. Japanese penetration of the US steel industry, involving everything from technical expertise and financial backing to joint ownership, may become almost as important as the more visible inundation of imported cars.
Japanese direct investment in US primary and fabricated metals tripled in 1984 from 1983, according to the Commerce Department. Although still relatively small -- reaching $535 million last year -- the growth outpaced that of total Japanese direct investment here, up 31 percent to $14.8 billion in 1984. This investment does not include the various loans Japanese companies have made to steelmakers upgrading their equipment.
The Japanese investment has generally taken one of three forms: technical and financial assistance for modernization projects; joint ventures; or small-scale investments in specific niches.
Originally, participation by the Japanese was in projects like the continuous caster at US Steel's Gary works. Aging equipment suffering from years of neglect by American steelmakers had created a pent-up demand for modernization in the 1970s. Japanese companies, like Nippon Steel Corporation, had expertise resulting from having constructed spanking new plants after World War II.
The demand for Japanese advice continues. Inland Steel Company is considering undertaking a million-ton project that will vastly shorten the time needed to make cold-rolled steel for autos and other products, with help from Nippon Steel and possible financing from the trading house Mitsui & Co.
The first major direct investment by a Japanese steel company was Nisshin Steel's 10 percent stake in Wheeling Pittsburgh Steel Company, a loss-ridden company currently being struck by the United Steelworkers. This and the mammoth $292 million paid by Nippon Kokan KK for half of National Intergroup last year have proven to be the exceptions to the rule of smaller investments.
Tucked away in towns in the Midwest and South are a mounting number of Japanese-built or bought companies that cut, paint, and process steel. They range from Marubeni Corporation's Bleim Steel Company in Toledo, Ohio, which cuts steel to order, to Sumitomo Metal America Corporation's half ownership of a plant in Benton Harbor, Mich., that applies a patented coating on the molds used in steelmaking.
Koji Akizawa, Sumitomo Metal America's vice-president and general manager, explains, ``Our basic policy is to invest in the smaller scope of prospective end markets in specific areas, like electrogalvanized sheet, or pipe fittings, or continuous casting.'' His company is constructing a plant with LTV Steel Company to make rustproof electrogalvanized sheet.
What is the driving force behind these diverse investments? Japanese steel producers acknowledge that the Japanese market is saturated, and further capital investments in their own country will do little to improve already high-class mills.
Other markets are either blocked by import restraints, as in Europe, or are the site of burgeoning domestic steel production, as in Brazil and Korea. And the lucrative business of exporting steel to the US has been curtailed by recently enacted import quotas. Akizawa at Sumitomo concludes: ``It's better to invest in American steel to secure a future market.''
The market sought by many of the Japanese trading companies that have acquired or started steel distributors consists of Japanese plants in the US. Nissho-Iwai American Corporation built a steel processing plant in Memphis amid a thicket of Japanese (and American) appliance companies.
This has led to accusations by American firms of a ``chuminess'' between Japanese companies that excludes them. Questioning this, however, Howard Brownstein, president of Peregrine Metals Group Inc., and a lawyer by training, says ``buying is not always rational, it's not always what is the best price today.'' Cultural factors, American or Japanese, play a part in any marketing relationship, he suggests.
Some American executives have even indicated that these relationships could eventually drive out American suppliers. The president of a Detroit steel distributor says he thinks Japanese steel companies, often linked with trading arms, hope to become familiar with the parts requirements of such giants as General Motors and eventually use their vast trade networks to buy these parts in countries with low-cost labor.
Most steel industry executives, however, acknowledge that the Japanese companies here do an excellent job. Columbia University professor Martin Starr said in a study that lower levels of defective parts, turnover, and absenteeism have all contributed to the Japanese success in the US.
Still, Japanese penetration of the American steel industry may be hampered by political issues. Import controls on direct investment are probably impossible, but Japanese companies feel political pressure to show their concern for how their growing presence affects this country. In conversations, Japanese steel executives frequently stress that they are filling untouched market niches, and that they like to do business with American and Japanese companies equally. But resentment lingers, spurred by wha t is seen as a closed Japanese market.