FEATURE: Kanadevia-NSE talks another sign of shrinking Japan

The two hope to finalize their integration by September and inaugurate it next April, they said. The deal would create the largest engineering firm in Japan, based on their latest combined sales of over Yen 1 trillion ($6.37 billion), which would be ironic given that both see their growth being overseas, not at home.

"In recent years, the business environment surrounding (both companies) has undergone significant change," the two declared. "In overseas markets, driven by the heightened global focus on the SDGs, demand continues to expand for the construction of new environment-related facilities, including Waste-to-Energy plants, and for the introduction of cutting-edge technologies. These developments are expected to offer further growth opportunities in resource-circulation and decarbonization-related businesses, areas in which (our) companies have long been engaged," they said.

Nippon Steel CFO Takahiko Iwai was more candid. Briefing media the same day following the steelmaker's October-December quarter results release, Iwai said that while his company had implemented structural measures to bolster NSE's performance, the current challenge was that the engineering firm's core environmental facilities business is closely linked to domestic demographics where "meaningful growth" is not expected.

Kyuden Mirai Energy's geothermal power plant in Oita, Kyushu: NSE acts as retail electricity provider

Source: NSE

"Overseas, on the other hand, business opportunities still exist, and... we believe there is strong compatibility (between the two firms) as we have strengths in areas such as decarbonization-related businesses, offshore wind and onshore wind power," he is quoted as saying. Both firms have many areas where their activities complement each other, including resource circulation and infrastructure, "and we see the combined entity becoming very robust in terms of scale," he added. During its business year to last March, NSE had reported operating income of Yen 3.9 billion, more than reversing its loss of Yen 11.57 billion the year before.

Gain with pain

But Iwai's words of optimism cannot hide what must have been a painful decision to jettison NSE. After all, the integration would see Osaka-headquartered Kanadevia Corp remain as the surviving company, with NSE being absorbed and probably disappearing.

NSE began life in 1974 as Nippon Steel's engineering division and for decades did the heavy lifting for steel-related contracts won by the steelmaker, designing and building heavy machinery such as the two 4,000 cu metre blast furnaces that Japan supplied China's Baoshan Iron & Steel project.

Notably, NSE has developed expertise in the area of Coke Dry Quenching (CDQ) systems, the process whereby inert gas inside a cooling tower is used cool red-hot coke produced in coke ovens. CDQ units reduce the generation of dust and CO2 emissions when cooling coke, and the steam heat created by the process can be utilized to generate electricity.

To date, NSE has supplied over 170 CDQ units worldwide to mills in China, South Korea, Vietnam and India, the company says. These include four large-sized 260 tonnes/hour capacity CDQs to China's Shougang Jingtang United Iron & Steel, and most recently, a 120 t/h unit for the IISCO steel plant in West Bengal managed by Steel Authority of India Ltd.

But symptomatic of the challenges NSE faces, the most recent CDQ order it had received in Japan was that in May 2020 for an 80 t/h unit for the Chiba area of JFE Steel's East Japan Works, as Mysteel Global reported. And that contract was NSE's first domestic order since 2013.

As more Japanese steelmakers accelerate their expansions abroad – such as Nippon Steel's purchase of US Steel last year and its blossoming partnership with ArcelorMittal in India – so NSE's chances of securing further orders in Japan are diminishing.

For its part, Kanadevia had suffered similar pain of loss much earlier. Founded in 1881 as Osaka Iron Works, the company expanded its operations into shipbuilding, steel structures, plant engineering, and industrial machinery in the 1930s, eventually renaming itself Hitachi Zozen (where 'zozen' means shipbuilding). Hitachi Zozen changed its name to Kanadevia Corp in October 2024.

By 1995, shipbuilding had accounted for 27% of Hitachi Zozen's business, but seven years later in 2002, rising competition from South Korean and Chinese shipyards prompted it to sell its shipbuilding division to the then Universal Shipbuilding Corp (owned by JFE Holdings, JFE Steel's parent, among others). This was later folded into a new company called Japan Marine United Corp (JMU) as part of a further industry reorganization.

Last December JMU came under the umbrella of Imabari Shipbuilding, based in Ehime Prefecture in eastern Japan, and last week, the circle was joined when Kanadevia announced that it was selling its majority stake in Hitachi Zozen Marine Engine Co (based in Kumamoto in Kyushu) to Imabari.

What will happen to NSE's CDQ business after Kanadevia absorbs the firm – assuming the integration proceeds – remains unknown. But the possibility exists for Kanadevia to sell it to a domestic or foreign plant builder. As Hitachi Zozen, Kanadevia was recognized as a supplier of sinter plants, raw materials handling equipment, electric arc furnaces and rolling machines, but not blast furnaces or coke ovens.

Written by Russ McCulloch, russ.mcculloch@mysteel.com

Edited by Alyssa Ren, rentingting@mysteel.com