JFE Shoji Holdings Inc.

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JFE Shoji Holdings Inc.

2-7-1 Ohtemachi
Chiyoda-ku
Tokyo, 100-8070
Japan
Telephone: (81 03) 5203 5510
Fax: (81 03) 5203 5289
Web site: http://www.jfe-shoji.hd.co.jp

Public Company
Incorporated: 2004
Employees: 30,000
Sales: ¥2.04 trillion ($17.38 billion) (2006)
Stock Exchanges: Tokyo
Ticker Symbol: 3332
NAIC: 331111 Iron and Steel Mills; 551112 Offices of Other Holding Companies

JFE Shoji Holdings Inc. is the sales and marketing arm of Japanese steel giant JFE Steel, created in 2001 through the merger of Kawasaki Steel Corporation and NKK Corporation. In 2004, JFE merged the two companies’ trading arms, Kawasaki Steel’s Kowasho Corporation and NKK’s NKK Trading Inc., to form Shoji Trade Corporation. That company supports JFE Steel by sourcing and importing raw materials, and providing domestic sales, as well as export sales for the company’s finished steel products. Shoji Trade’s operations also extend to the trade in nonferrous metals, chemicals, fuel, machinery, and other equipment and materials, including seagoing vessels and the like. In addition to its direct trading operations, Shoji Trade is also a major steel products processor, operating a network of factories throughout Japan, producing a variety of steel products for the construction and automotive industries, among others. In addition to its domestic production network, Shoji Trade also operates throughout much of the Asian region, largely through joint ventures. As such, the company has established a presence in China, Thailand, Indonesia, the Philippines, Singapore, Vietnam, Taiwan, and Malaysia. The company also has operations in Mexico. Shoji Trade remains the largest part of JFE Shoji Holdings, accounting for more than 97 percent of the group’s total revenues of ¥2 trillion ($17.4 billion) in 2006. Other parts of the JFE Shoji Group include Kowasho Foods Corporation, Kowasho Semiconductor Corporation, and Kowasho Real Estate Corporation. JFE Shoji Holdings is listed on the Tokyo Stock Exchange and is led by chairman Hiroo Naruki and president Osamu Sato.

NKK TRADING PARTNER IN 1926

Although JFE Shoji Holdings was formed only in 2004, it started out as one of Japan’s leading trading companies, with roots reaching back through much of the 20th century. The oldest part of the new company was NKK Trading, the trading subsidiary of NKK Steel founded in the 1920s. The other half of Shoji Trading came from Kowasho Corporation, founded in the 1950s as part of Kawasaki Steel. The merger of NKK Steel and Kawasaki Steel in 2001 not only resulted in the creation of Japan’s leading steel producer, but also in the formation of one of the country’s top trade giants with revenues of more than ¥2 trillion ($17 billion) per year.

NKK Trading stemmed from Fuji Shoji Company, a company established by Seijiro Teramoto in 1926 as a seller of steel pipes. The company also launched its own import operations, supplying boiler tubes to the Japanese market. Through the 1920s, Fuji Shoji developed a strong relationship with Nippon Kokan KK, the future NKK Steel, a company founded in 1912 in order to produce steel products. NKK made its mark by pioneering the production of seamless steel pipe in Japan, and quickly grew into a major supplier to the country’s military and industrial complex. The Great Kanto Earthquake of 1923, which leveled most of Yokohama and much of Tokyo, provided a huge boost for NKK, as the company’s seamless pipes came under heavy demand. The buildup toward World War II provided both NKK and Fuji Shoji, which grew into the steel company’s major trading partner, with fresh opportunities for growth. Similarly, in the postwar period, both companies again profited from the reconstruction of the major part of Japan’s industrial and civil infrastructure, which had been destroyed during the war.

By the end of the 1950s, NKK had launched a drive to develop an international presence. At the same time, NKK launched a vertical integration strategy, designed to give it control over the entire steel-making process, from raw materials to finished products. As part of that strategy, NKK moved to take over its trading partner, buying a 50 percent stake in Fuji Shoji in 1973. The trading company was then merged into NKK’s own trading operation, Kokan Shoji, and both operations were reorganized under the Fuji Shoji name.

Into the 1980s, as NKK continued to expand internationally, it moved to take more direct control of its trading operations, while at the same time extending the range of finished products produced using its steel. As part of this effort, the company acquired Ito Soji Shoten in 1988, and added additional steel products. The following year, NKK reorganized its steel products manufacturing and trading business into a new company, NKK Trading. That company then focused not only on building up its domestic operations, but also on developing an international export business, with a particular focus on steel pipes, pipe sections and steel plate. By 1991, NKK Trading had added structural and steel strip to its mix, through the acquisition of Naniwa Shoji. The next year, the company also took over another NKK subsidiary, Nakajima Shoji, which focused on the market for specialized pipes.

Through the 1990s, NKK Trading expanded its revenues from sales of ¥96 billion in 1989 to more than ¥400 billion in the early 2000s. The company’s growth was all the more impressive considering the extended recession that had severely curtailed Japan’s economic growth throughout much of the 1990s and into the next century. A major factor behind NKK Trading’s success was its determination to develop itself as an international trading group. China had been among the company’s earliest foreign markets, and an early office opened in Beijing. Through the 1990s and into the 2000s, NKK Trading added operations in Bangkok, Brisbane, Hanoi, Hong Kong, Seoul and Shanghai. The policy of NKK Steel, like much of the Japanese steel industry, to invest in technologically advanced steel production and products, helped NKK Trading capture a growing international client base, despite the economic turmoil that affected its parent company and much of the Asian region in the 1990s.

KAWASAKI TRADING ARM CREATED IN 1954

In the meantime, a wave of consolidations had swept through the global steel industry. In order to remain competitive, NKK Steel, then Japan’s second largest steel group behind Nippon Steel, began looking for its own partner. The company turned to number three Kawasaki Steel Corporation, forming a sales and marketing partnership in 2000. By 2001, the two companies went ahead with a full-fledged merger, creating JFE Steel Corporation. Over the next several years, the new company carried out an extensive reorganization, leading to the merger of their respective trading operations into JFE Shoji in 2003.

Kawasaki Steel brought its own highly developed trading subsidiary to JFE Shoji. Founded in 1878, Kawasaki had grown into one of Japan’s largest conglomerates by World War II. The company was forced to dismantle its conglomerate in the postwar period, leading to the breakup of the larger group into Kawasaki Steel and Kawasaki Heavy Industries.

COMPANY PERSPECTIVES

The JFE Shoji Group’s business vision is to promote sound and transparent management by thoroughly implementing corporate governance, to establish an open and liberal corporate culture based on the creativity of each individual employee, and to maximize enterprise value and make a significant contribution to the market and society as a whole.

By the early 1950s, Kawasaki Steel had successfully rebuilt much of its operations from the devastation suffered during the war. In 1954, the company decided to put into place a new strategy—building a new vertically integrated steel plant. The new plant was to include not only manufacturing facilities for finished steel products, but also its own sales and marketing operation. In order to achieve this, Kawasaki bought three wholesalers that had been distributing the company’s products on an exclusive business. These companies were merged together to form Kowasho Trading. Kowasho’s operations were completely under way by 1958, following the completion of the construction of Kawasaki’s new strip mill at its Chiba steelworks.

Kowasho quickly expanded its operations throughout Japan, opening a number of branch offices starting in 1957. The company also turned to the overseas market early on, opening its first foreign branch in the Philippines in 1958. Kowasho’s next growth effort came through acquisition, when it took over the operations of one of Kawasaki Steel’s major wholesalers, Ogura Corporation, in 1961. In that year, backed by Kawasaki Steel’s strong investments in technology and new product lines, Kowasho became the first in Japan to market steel H-bars.

Through the 1960s, Kowasho set a new strategy of expanding its operations beyond the steel market. The company targeted a variety of new trade sectors, including coal, chemicals, machinery, cement, and a variety of other areas. This effort was launched in 1962, when the company launched an import operation to bring coal from the United States. In 1968, the company had added imported lumber from Indonesia, and by the end of the decade, Kowasho’s diversified trade interests encompassed an array of sectors, including diamonds, shrimp, and whiskey. In support of its bustling import and export operations, Kowasho entered the shipping industry as well. Part of Kowasho’s impetus during this period came from Kawasaki Steel’s decision to streamline its trading operations, resulting in the merger of another major trading subsidiary, Kawaichigisho Corporation, into Kowasho, in 1969.

In addition to its import and export businesses, Kowasho also became responsible for the production of a number of finished steel products. In 1970, for example, the company launched the operation of its own hot strip mill, as part of the Kawasaki steel works at Mizushima. However, trade remained the company’s primary focus, and by the middle of the 1970s Kowasho had become the core trading division of Kawasaki Steel. In 1975, the company became the first of Kawasaki Steel’s subsidiaries to go public, listing on the Tokyo Stock Exchange’s second section. At the same time, Kowasho had grown into one of Japan’s top trade groups, claiming a spot among the country’s top ten, as well as the position as leader in the specialist steel sector. The company’s position was further reinforced in 1983, when it acquired another specialist steel trading company in the Kawasaki Steel empire, Kawatetsu Bussan.

Through the 1980s and into the 1990s, Kowasho developed along two primary lines. The first of these was the company’s decision to diversify its trading business. The company began importing canned fruits and vegetables from China, and silk textiles and clothing from Thailand, among others. By the late 1980s, the company had entered the semiconductor industry, and then emerged as Japan’s leading importer of amusement park rides.

KEY DATES

1926:: Seijiro Teramoto founds Fuji Shoji Company, a seller of steel pipes, which becomes major partner of NKK Steel Group.
1954:: Kawasaki Steel Corporation creates steel products processing and trading subsidiary Kowasho Trading Corporation.
1969:: Kowasho takes over Kawasaki Steel trading subsidiary, Kawaichigisho Corporation.
1973:: NKK Steel acquires 50 percent of Fuji Shoji, which then merges with NKK’s own trading operation, Kokan Shoji.
1975:: Kowasho goes public with listing on Tokyo Stock Exchange.
1989:: NKK Steel reorganizes its trading operations into a new subsidiary, NKK Trading.
2001:: Merger of NKK Steel and Kawasaki Steel creates JFE Steel Corporation.
2004:: JFE Steel merges its Kowasho and NKK Trading businesses into JFE Shoji Trading under a new holding company, JFE Shoji Holdings.
2006:: JFE Shoji opens new branch sales offices in India and Malaysia.

The economic slump at the beginning of the 1990s put a halt to the group’s diversification strategy, however, and by 1993, Kowasho had relaunched a restructuring of its business lines. Instead, the company placed its focus on its second line of growth, international expansion. The rapid growth of many of the Asian markets in the 1980s had created new opportunities for Japan’s steel industry. The lower wages in these markets, coupled with the strength of the yen against the region’s currencies, encouraged an increasing number of Japanese companies to establish manufacturing operations outside of Japan. Kowasho made the decision to follow these companies, establishing plants for processing steel products in order to supply manufacturers throughout the Asian region. This policy remained central to Kowasho’s operations through much of the 1990s, until the economic collapse that swept through much of the region forced the company to refocus its effort on shoring up its Japanese operations.

JAPANESE STEEL TRADING POWERHOUSE IN THE NEW CENTURY

The swiftness with which the new JFE Steel Corporation had integrated the NKK and Kawasaki operations set something of a precedent among the world’s “megamerger” market. By 2004, with much of the integration of the group’s steel production operations already completed, JFE moved to consolidate its trading operations as well. This led to the creation of a new holding company, JFE Shoji Holdings, as the vehicle for the combination of Kowasho and NKK Trading into a single company, JFE Shoji Trading. The new holding company, which remained listed on the Tokyo Stock Exchange, also took over a number of other businesses held by the trading companies or their parents. These included Kowasho Foods Corporation, which specialized in the importing of canned corned beef and other foods products; Kowasho Semiconductor Corporation, which combined the semiconductor trading businesses of both NKK and Kawasaki; and Kowasho Real Estate Corporation, which took over the group’s real estate interests. Nonetheless, these operations remained quite small compared to the main steel trading business. By 2006, JFE Shoji Trading posted sales of more then ¥2 trillion ($17 billion).

Following its creation, JFE Shoji began seeking new expansion opportunities, particularly on an international level. In 2004, the company secured a long-term coal supply through its acquisition of stakes in two Australian coal mines, in Carborough Downs and in Glennies Creek, in association with American Metals & Coal International Inc. JFE Shoji also continued to expand its foreign steel products processing prowess. In 2005, the company created a joint venture with Cleanvy Company Ltd. to manufacture parts cleaning machines in Thailand. The following year, the company established a new steel sheet processing subsidiary, specialized in coil centers, in Vietnam. This was followed by the creation of new sales offices in India and Malaysia toward the end of the year. The diversified JFE Shoji Trading was not only a major part of the JFE Steel group, it had also taken a place among the world’s top trading companies in the new century.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

Dongguan JFE Shoji Steel Products Company Ltd.; JFE Container Company Ltd.; JFE Engineering Corporation.; JFE Holdings Inc.; JFE Koken Corporation; JFE Shoji Holdings Inc.; JFE Shoji Steel de Mexico S.A. de C.V.; JFE Shoji Steel Malaysia Sdn Bhd; JFE Shoji Trade Corporation; JFE Shoji Trade Corporation; JFE Shoji Trade Korea Ltd.; JFE Shoji Trade Thailand Ltd.; JFE Steel Corporation; JFE Systems Inc.

PRINCIPAL COMPETITORS

Nippon Steel Corporation; Mory Industries Inc.; Nippon Kinzoku Co. Ltd.; Yodogawa Steel Works, Ltd.; Sumitomo Metal Industries, Ltd.; Chubu Steel Plate Co., Ltd.; Kawagishi Bridge Works Co. Ltd.; Molitec Steel Co., Ltd.; Powdertech Co., Ltd.; Maruichi Steel Tube Ltd.