Nippon Light Metal Company, Ltd.
Nippon Light Metal Company, Ltd.
Sales: ¥636.79 billion (US$4.69 billion)
Stock Exchanges: Tokyo Osaka Nagoya Fukuoka Hiroshima Kyoto Niigata Sapporo
Nippon Light Metal Company concentrates on the manufacture and sale of alumina chemical and chloride products; aluminum ingot and alloys; aluminum products; components for building, heating, and cooling equipment and automobile construction; as well as household utensils and aluminum fabricated products. Japan’s only fully integrated aluminum producer, the company divides its business activities into five main areas. The first is chemical; manufactured items include chemicals containing aluminum hydrates, alumina, caustic soda, and fluorine. Fabricated items come from the second area, for example, aluminum materials, including rolled products such as aluminum sheets. Materials for renovation and new building construction form the third main interest area. The fourth area focuses on food storage and transportation-prefabricated refrigerators and vans as well as high-technology cooling equipment. Information systems, comprehensive distribution and trading, and the development of new business ventures fall into business support services, the fifth area.
The Nippon Light Metal Company was established in 1939, through a link between the Furukawa Electric Company and the Tokyo Electric Light Company. The new company had a clear mission, for Japan was on the brink of World War II and desperately needed aluminum for munitions and aircraft. Scarcely a year after its first appearance, the aluminum manufacturer was ready to contribute to the war effort with a factory at Kambara. Two years later, in 1941, the company opened two more factories—one at Niigata, the second, with alumina refining capabilities, at Shimizu. These two additions made Nippon Light Metal the largest aluminum producer in Japan, and a major source of the 165,000 tons needed for the wartime peak years.
The company expanded its activities further in 1946 by reclaiming aircraft aluminum for manufacturing. Nevertheless, its production activities were hampered by the country’s lack of bauxite, the source of alumina from which aluminum is made. In 1948 it remedied this problem by starting to import the essential ore.
Defeat in World War II and the subsequent Allied occupation brought devastation to Japan’s aluminum factories as well as the loss of their international bauxite sources. In an effort to rebuild, Nippon Light Metal formed close ties with Aluminium Limited of Canada, later known as Alcan Aluminium Limited, which acquired 50% of the Japanese company shares in 1952, and still held 45% in 1990. Alcan’s contributions to the union were smelting technology and bauxite, which came from Malaya and British Borneo, as well as from the Indonesian regions that had previously been Japan’s sole source.
Advantages for Alcan included Nippon Light Metal’s two-year-old management participation in a company called Nasu Aluminium Manufacturing Company, later renamed the Nikkei Aluminium Company. A producer of aluminium sheets, extrusions and architectural products, Nasu operated plants based in Tokyo and Nagoya. While both facilities were equipped with rolling mills that expanded their product lines, the Tokyo plant also featured a 3,250-ton horizontal extruder, enabling the company to manufacture aluminum window sashes for the rapidly-expanding building construction market. Braced by a burgeoning Japanese economy, by 1960 Nikkei Aluminium’s monthly orders for raw aluminum ranged between 560 and 600 tons, all of which came from Nippon Light Metal.
Also in the Nippon group at the time of the Alcan agreement were the Special Light Alloy Company and the Osaka Aluminium Company. By 1960 Osaka Aluminium was producing between 120 and 130 tons of aluminum sheets monthly, plus about 250 tons of industrial alumina sheet.
The years between 1955 and 1965 were good for the aluminum fabricating industry. Although expansion into fabrication would have been the logical growth direction for the smelters, they elected to ally themselves with fabricators, rather than entering the field themselves. There were several sound reasons for passing up this opportunity. Paradoxically, one was a rapidly expanding market. Demand for aluminum items like cookware, building products, and components for the transportation industries was now growing so fast that 14 new fabricating firms entered the market during this ten-year period. All of them pitted themselves against established companies, vying for business from the smelting firms capable of supplying them with enough ingots to fill the burgeoning need for their products. It was therefore more profitable for them to make capital investments in these fabricating firms than to enter the field itself.
Expensive electricity also made this type of expansion more sensible for the smelters, whose production costs were far higher than those of their U.S. competitors. Nippon Light Metal scored handsomely here. Supplied with cheaper energy from five company-owned hydropower stations, the Kambara facility ran at the lowest production cost in Japan, turning out of 70,000 tons of aluminum by 1962.
Also at Kambara the company built Japan’s only central research institute, where refining and processing technology was studied along with market development methods. Originally known as the Nippon Light Metal Research Laboratory, it was later called the Nikkei Techno-Research Company.
Although the Japanese government relaxed its import controls in 1961 to allow less expensive aluminum into the country, the producers managed to remain competitive. Tariff rates were set at 15%, were reduced further to 13% in 1964, and sank to 11.4% by 1968. Still, as long as the rates remained above 10%, the domestic producers were able to hold their own by operating at high capacity. This alone was a powerful incentive to align themselves with established fabricating companies.
Nippon Light Metal rode the business cycles easily. Between October 1959 and March 1960, the company enlarged the Shimizu plant from its original capacity of 160,000 tons annually, to provide a capacity of 185,000 tons annually. Now able to supply enough alumina for both the Kambara and Niigata refineries, Shimizu played its part in making Nippon Light Metal the country’s largest aluminum refiner by 1962. By the end of the year, the company accounted for more than half of Japan’s total aluminum production.
By the late 1960s the Japanese aluminum market was the fastest growing in the world. Nippon Light Metal extended its operations to include a major partnership in Nippon Fruehauf Company, a manufacturer of aluminum-bodied van-type trailers. This plus other operations provided a 1968 net income of US$7.5 million, as against US$3.2 million in 1959.
In the same year, growing markets for its products prompted Nippon Light Metal to build a US$125 million smelter at To-makomai on the island of Hokkaido. Financed partly by the Japanese government and partly by Alcan, the new plant was originally scheduled for full production capacity of 130,000 tons by 1972. However, buttressed by a supply of alumina from Shimizu alumina refining plant on Honshu Island, Toma-komai was providing an initial capacity of 65,000 tons by late 1969, far ahead of its scheduled debut. Within three years, completion of the plant’s own alumina facility made it self-sufficient.
The tariff problem reared its head again in the early 1970s. To encourage importing from developing countries, part of these imports qualified for a reduced 1970 tariff rate of 4.5%, as against a 10.6% rate for other imports. A year later the rate was reduced further to 9.8%, and then to 9%.
The balance of the Japanese market was also changed by the 1973 revaluation of the yen. The new flexible exchange rate system caused the dollar to decline from ¥360 to the U.S. dollar to about ¥270 to the dollar. Although this ratio effectively reduced the domestic smelting costs and made imported aluminum cheaper, the balance still swung in favor of foreign products. The results showed in tonnage tallies for primary aluminum; in 1971, the country imported 209,000 tons, while the following year the amount rose to 293,000 tons, soaring to 428,000 tons by the end of 1973.
The list of problems challenging the Japanese aluminum producers did not end with the changes in the yen and the tariffs. The question of electricity costs was far more pressing, since the aluminum industry depended on oil to generate electricity. Prior to the 1973 oil embargo, the price of electricity was four times as high in Japan as it was in Canada, and more than twice as high as it was in the United States. Alternatives were limited; either a smelting company could build a power plant together with a power company, use the power company as the sole source, or mix the two methods.
At the time of the 1973 oil crisis, the Japanese economy was booming, and the demand for aluminum soared to 1.6 million tons. Contributing to the demand was the rising international popularity of Japanese motorcycles and automobiles. Also burgeoning was the aluminum beverage can market. Along with a U.S. company, National Can Overseas Corporation, and two other Japanese companies—-Nichimen Company and Kawasaki Corporation—Nippon Light Metal took a 30% share in a joint agreement to make aluminum cans in Japan. Adding to the boom was a U.S. drought, which had reduced U.S. operating ratios by affecting hydropower sources.
The price of a barrel of oil, however, rose to $12.05 in 1974, from $4.75 just one year earlier. With the rest of the Japanese economy, Nippon Light Metal felt curbs immediately. In November of 1973 the company announced that it would cut aluminum shipments to customers by 20%, as a result of the oil and electricity shortages. In 1975 the company cut production from 90% of its 424,000-ton annual output to 80%, closing the No. 1 Kambara plant, and postponing for six months the enrollment of 437 workers scheduled to start in the spring, although they were paid 60% of their basic pay during this period.
In other plans to combat the rise in power costs and offset the cuts in domestic production, Nippon Light Metal employed the strategy used by other producers and invested in overseas ventures. Undertaken along with Alcan Aluminium, one 1977 project involved the conversion of alumina into aluminum ingot. The new venture used Alcan Aluminium’s smelting facilities at Kitimat, British Columbia, and allowed Nippon Light Metal to use half of the ingot production in Japan.
Another strategy to combat the high cost of energy involved diversification and increased emphasis on manufacturing. Nippon Light Metal followed this path with the 1974 acquisition of both Nikkei Aluminium Rolling Company and the Nikkei Aluminium Company. The acquisitions enabled Nippon Light Metal to form a continuous aluminum production system featuring three independent divisions for smelting, light rolling, and end products and construction materials.
Despite these moves, high energy costs prevailed. The company registered a loss of ¥5.5 million at the end of its 1975 financial year, forcing it and its subsidiaries to reduce their work force by about 1,100 employees by the end of the fiscal year on March 31, 1978. In other moves, they also withheld pay increases and bonuses, and encouraged about 300 voluntary retirements.
By 1978 the value of the yen had risen. This rise proved to be another brake on industry profitability, even though aluminum prices on the world market were rising. In accordance with government guidelines, production was reduced, the country importing about 30% of its aluminum needs.
Nevertheless, there were signs that the tide was turning. In spite of the company loss of $5.6 million for 1978, in early 1979 Nippon Light Metal was awarded a contract to design and build a smelter in the People’s Republic of China, and to train Chinese engineers to operate it.
Also in 1979, there was another oil crisis caused by the Iranian revolution. The price of oil rose from $23.07 in that year to $38.24 per barrel by June 1981. This increase brought the price of electricity to the prohibitively high level of about ¥16 per kilowatt hour, raising energy prices for smelting to more than 50% of production costs. As a result domestic aluminum cost about ¥500,000 per ton, as against $1,280 for the imported product. The same year, the Ministry of International Trade and Industry requested aluminum smelters to close 30% of their capacity, and Nippon Light Metal closed its Niigata electrolyzing plant, dismantling it and selling it for export.
Along with other Japanese aluminum producers, the company then began to fund research into less energy-intensive smelting processes. Another research priority was a refining method that could utilize ores other than the expensive, imported bauxite.
Nippon Light Metal also began to look for aluminum sources overseas. In 1980 it signed a contract with Alcan Australia Ltd., whose New South Wales smelter started providing them with ingots in 1982. Recycled products from scrap like aluminum cans and siding were other sources increasingly valued by Japanese producers; totaling 200 million pounds in 1977, the amount reached more than 600 million pounds by 1979.
Opportunities to expand fabrication activities were not neglected. In 1978 the company had acquired the Nikkei Aluminum Sales Company. At the same time, it established a continuous sales and production system for the plate rolling division as well as for the products and construction materials division. A year later, the company separated the product section from construction, simultaneously reorganizing the materials section. In addition, it closed the Niigata plant, thus saving on salaries. The reshuffling brought its reward; sales figures of US$1.60 billion moved the company into a profit position once again.
Government actions also helped. Between 1978 and 1979 the Japanese authorities introduced reductions in the tariff rates on a first-come, first-served basis, so that orders could be filled. In 1983 this plan was refined to reduce the target capacity from 1.1 million tons to 700,000 tons. By way of compensation the government introduced a tariff exemption system that freed producers from taxes on aluminum that had to be imported to make up existing requirements.
Nippon Light Metal responded to these changes with further diversification, establishing a chemical division in 1984. Products of the new section included aluminum hydroxide—a basic ingredient in glass, artificial marble, flame-retardant fillers and industrial chemicals. The company entered another field in 1986, when it established the cast and forge products division to manufacture electronic parts, parts for heat exchangers, components for motorcycles and automobiles, and connecting rods.
In 1988 a general company reorganization established five different headquarters: basic materials, light rolling, fabricated products, development, and production technology. The company also expanded its building trade interests, forming JPC Company in a joint venture with Kurosawa Construction Company, Ltd.
Nippon Light Metal Company was 50 years old in 1989. Sales income for the first half of the financial year reached ¥137 billion, rising to ¥270 billion by March 1990. By this time, the company owned the only smelter in operation in Japan and was responding to increased demand for aluminum in the transportation and capital goods sectors. The year was further marked by a share increase to 75% in the Thai Aluminium Company Ltd., subsequently renamed Nikkei Thai Aluminium Company, Ltd.
Shin Nikkei Company, Ltd. (66.7%); Nippon Electrode Company, Ltd.; Nikkei Techno Research Company, Ltd.: Nippon Fruehauf Company, Ltd. (51%); Nikkei Shoji Company, Ltd. (83.3%); Riken Light Metal Industry Company, Ltd.; Nikkei Thai Aluminium Company, Ltd. (75%).
United Nations Economic Commission for Asia and the Far East, Bauxite Ore Resources and Aluminum Industry of Asia and the Far East: Mineral Resources Development Señes No. 77, Bangkok, United Nations, 1962; Peck, Merton J., ed., The World Aluminum Industry in a Changing Energy Era, Washington, D.C., Resources for the Future, 1988.