Nippon Steel: Welding Australian iron and coal into Japan’s mighty metal industries

Nippon Steel & Sumitomo Metal Corporation (NSSMC) has been a principal player in the enduring partnership of Australian resources and Japanese industry. NSSMC pioneered the first cargo of iron ore from the Pilbara to Japan, and since 1977 the company has invested over A$2 billion in Australian mines. In 2015 alone, NSSMC Corporation purchased 61 per cent of its iron ore and 50 per cent of its coking coal from Australia, in exports worth A$8.7 billion.

Forging closer economic ties through four decades of investment

The confidence shown by NSSMC has contributed to a strong trading relationship. For over 40 years, Japan has been the largest global buyer of Australian coal – and demand for high-quality coal is set to continue. In Japan today, there is unprecedented investment in state-of-the-art, clean-coal power stations, which means Australian coal will remain central to Japan’s energy needs for decades to come.

Today, NSSMC is a catalyst for Australia’s closer economic ties with Japan. Over the last five years, NSSMC has purchased more than A$44 billion worth of coal and iron ore from Australia. Aided by NSSMC investment in Australian mines and export-related infrastructure, Australia accounts for more than 60 per cent of Japan’s coal imports and nearly 60 per cent of Japan’s iron ore imports.

Two factors stand out in NSSMC’s four-decades-long investment in Australian mining. First, the long-term involvement of NSSMC executives in the bilateral relationship, who have consistently promoted partnership between Australia’s mining sector and the Japanese steel industry at the highest level. Second, Australia’s appeal as a reliable supplier of commodities, which contributes towards Japan’s overall economic security.

NSSMC promotes Australian resources exports in Japan

The presidents of NSSMC’s forerunner, Nippon Steel, have wielded substantial political and diplomatic influence – to the benefit of Australian economic interests. As major figures within the Japanese steel industry, they have developed close associations with the Japanese Government, and other leaders within the wider Japanese business community.

Akio Mimura, AC, President of Nippon Steel from 2003 to 2008, is now Chairman of the Japan-Australia Business Co-operation Committee (JABCC), as well as the Japan Chamber of Commerce and Industry, while former JABCC chairman, Takashi Imai, AC, was also President of Nippon Steel. He also served as chairman of the Keidanren, the influential Japan Economic Federation.

NSSMC has also taken a wider role in facilitating commercial partnerships between Australian businesses and Japanese investors. Since the 1970s, NSSMC has acted as the lead spokesman and coordinator in major long-term business arrangements between Australian companies and other Japanese steel mills.

Australia contributes to Japan’s security of supply

According to Masahiko Suenaga, Managing Director of Nippon Steel & Sumitomo Metal Australia, the development of Australia’s coal and iron ore industries are hallmarks of the complementarity in economic relations between the two countries.

Suengaga added that Australia has long held the number one position in Japan as a supplier of both coal and iron ore for decades and this is set to continue. He reflected there is a unique complementarity between the two countries in coal, given Australia is a world-class coal exporter and Japan continues to be a major coal importer that is keen to make the best use of Australia’s high-quality coal with advanced technologies prioritising higher efficiency and lower emissions.

Japanese companies are also investors in Australian infrastructure, with a 30 per cent interest in the Port Waratah coal-loading facilities in Newcastle. This has become one of the largest coal-loading terminals in the world, helping Australia export around 100 million tonnes of coal per year from Newcastle. With this background, Japan has long been the top destination of export coal from Australia.

Over the past five decades Japan’s industrialisation and outward foreign direct investment (FDI) have helped underpin the expansion of the Australian minerals and energy sector. Japanese companies have greater investments in Australian mines than in the whole mining sector of the Americas.

Trade liberalisation between Australia and Japan is a direct contributor to resources exports. Following the 2015 entry into force of the Japan-Australia Economic Partnership Agreement, the Minerals Council of Australia commented: ‘The agreement will strengthen the already formidable relationship between Japan and the Australian resources sector.

That relationship stretches back to 1977, when Nippon Steel and Sumitomo Metal, along with Mitsui & Co. – became an anchor investor group with Rio Tinto in the Robe River Iron Ore Project. Over the following decades, this investment helped turn the Pilbara region into one of the world’s biggest iron ore–exporting regions. With the merger of Nippon Steel and Sumitomo Metal in 2012, the NSSMC stake in Robe River now stands at 14 per cent.

Partnering Australia’s BlueScope in global markets

In addition, NSSMC has interests in six coal mines in Queensland and New South Wales. The company’s latest investment is a 10 per cent equity stake in the Boggabri mine in New South Wales, which produces seven million tonnes of coal per year, and supports 600 employees and contractors.

NSSMC has also partnered with Australian steel icon, BlueScope. In May 2013, NSSMC took a 50 per cent equity stake in BlueScope’s steel operations in South East Asia and the US for A$519 million. As producers of flat steel, the two companies are a natural fit: NSSMC’s strength in automotive and electric appliances sector complements BlueScope’s prominence in the construction market.

At the time of the merger, the Chief Executive of BlueScope, Paul O’Malley, commented: ‘BlueScope and NSSMC have been working together for more than 40 years and understand each other’s technical expertise and business approach. The major driver was not the synergies between the two major steel products, but their natural complementarity in product ranges.’

In September 2016, NSSMC announced it would install a third metal-coating line in BlueScope’s Thailand plant for an additional investment of around US$125 million. This facility will commence operations in mid-2018. BlueScope’s gross profit in Thailand has almost doubled over the past five years from A$27 million to A$50 million, owing part of its success to the opportunities leveraged from the joint venture.