Australian steelmaker BlueScope dominates its home market and New Zealand. Japan’s Nippon Steel & Sumitomo Metal is the top dog in Japan. Both see capitalizing on Asian demand for high-quality, downstream, infrastructure-related steel products as the way forward amid industrywide overcapacity. And at least in some parts of the region, they are in it together, having formed a joint venture earlier this year.
NS BlueScope Coated Products, the joint venture with Nippon Steel & Sumitomo Metal, or NSSMC, was officially incorporated in March with an enterprise valuation of US$1.36 billion. It makes high-end, value-added building and construction materials, doing business in Singapore, Thailand, Indonesia, Malaysia, Brunei, Vietnam and the U.S.
“As the region’s middle classes grow and become more affluent, they will increasingly seek quality over price,” BlueScope CEO Paul O’Malley, 49, told Nikkei Asian Review, speaking over the phone from the company’s headquarters in Melbourne.
Analysts at Citi described the joint venture’s creation as a “company-changing event,” reflecting BlueScope’s own confident predictions of a swing back into the black in the current fiscal year to June 30. This would be a dramatic turnaround from losses of 1 billion-plus Australian dollars in recent years.
Aside from shoring up BlueScope’s balance sheet, the joint venture strengthens both companies’ positions in vital new markets. NSSMC, in a midterm management plan released in March, expressed its determination to build a global supply network for a range of steel materials — among them flat products, pipes and construction materials along with railway, automotive and machinery parts. Regarding NS BlueScope, the plan specifically mentions that the venture is aimed at infrastructure.
Meanwhile, the Australian concern is forging deeper into China without its Japanese partner. It has left the door open for alliances with Chinese companies.
While about 40% of BlueScope’s earnings still flow from Australia and New Zealand, the company recently opened its 10th Chinese factory. This expansion may seem counterintuitive given the country’s excess steel capacity — it recently reported a surplus of up to 300 million tons a year, roughly equal to Japan’s entire steel production. But the China business stands to benefit from the company’s ongoing shift into specially coated and painted steel products, O’Malley stressed. These were originally developed for Australia’s harsh climate but have proven popular in large Asian cities, where buildings are buffeted by heavy air pollution.
“We are further up the technology chain than any Chinese steel company apart from Baosteel,” O’Malley said, referring to the Shanghai-based leader of China’s steel sector. “There is plenty of room in the market for both of us. We see China as an opportunity rather than a threat. Read more….
This story was originally published at Nikkei Asian Review, 5 December 2013