For more than a century, Fuwa Metal has contributed to the recycling of resources and the development of the recycling industry as a leading company in the collection, processing and sale of steelmaking raw materials. We spoke to president Masaaki Katsuyama to find out more about how Fuwa Metal continues to push innovation in the iron recycling sector.
Japan is an island nation located at the periphery of the Asian continent and is known for its lack of natural resources for manufacturing. When it comes to annual steel production, Japan is the third in the world, only behind China and India. Why is Japan so successful when it comes to steel making?
The modernization of Japan began in 1868, right after the fall of the Edo shogunate.
The construction of Yawata Steel Works began in 1901, the first year of the 20th century, which was followed by the Pacific War between 1941 and 1945. With the exception of the Pacific Theater, the steel accumulation period was less than 40 years, and naturally, the amount of iron scrap generated in Japan was small and the crude steel production was insufficient. As a result, Japan made the protection of the steel industry a huge priority policy and continued the iron scrap cartel from 1955 to 1974.
We, the iron scrap industry, were also trained by that policy, and as a result of postwar population and economic growth promoting industrial activities and accelerating capital investment in the steel industry, Japan's steel production surpassed the United States in 1971 to become the world's number one. Then Japan, which reigned as the world leader for about 25 years, was overtaken by China, which currently accounts for half of the world's 1.8 billion tons of crude steel annually.
We believe that it is our mission to provide raw materials to the Japanese steel manufacturing industry, and since its founding in the Meiji era, with a history of 114 years, we have developed a processing industry by collecting iron scraps.
While the population of India and China, where the steel industry is thriving, is large and increasing, the population of Japan is declining due to the declining birth rate. We see Japanese firms looking abroad for new customer bases. When they are looking for recruitment, it is more difficult to get new employees to join the companies. Can you tell us how the population change here in Japan has affected your business and what changes are you making in response?
The aging population in Japan is a serious issue, not only for our company but for Japanese society as a whole. Automation can replace human labor to some extent but there is a limit to it. The Japanese government is now pursuing immigration policies for foreign workers to secure a labor force, especially in the medical, technology, and construction fields.
Twenty years ago, when visiting the recycling business in China, I felt how they worked was similar to Japan in the mid 1950s. We have taken the same path first and experienced the same hardships, and by providing that experience and know-how to Chinese recyclers, we can bring great potential to them in the near future. Not only have we worked with the recycling business in China, but also other developing countries such as Vietnam, Indonesia and Bangladesh. We welcomed workers from these countries who could learn about the Japanese recycling business while working at our factory, and then take that knowledge back to their own countries to contribute to their technological development. We have a stance of contributing to the industry in our own way, but in order to make up for the shortage of human resources in Japan, the government will need a solution for a long-term strategy.
Regarding our trading business, when the consumption of Japanese electric furnace manufacturers dropped sharply in the 1990s, we started importing from Southeast Asia in 1982. And from 2012, the trade business became centered on employees who learned trilateral trade in New York, USA.
In January 2020, we established an independent overseas division. My business theory is "a circle of trust between people through things." For example, when we have a big contract or a meeting, we try to spread the knowledge both in Japan and overseas by appointing our own employees without outsourcing. Based on this "circle of trust", we would like to foster good relationships with overseas business partners.
Your company has already established a good network including fifteen bases in Japan and three bases in the United States. Can you give us an insight into how your network functions and how it allows you to serve your clients with the scrap iron materials that they need to make steel?
In 2007, we went overseas for the first time to New York, United States because they’re leaders in the steel industry. Of course, I immediately searched for new business locally, but it was, and is still not easy for newcomers. Therefore, the first step was to collect information. When we investigated the transportation route of iron scrap, bulk transportation was the most common means of transportation from the west coast to the east coast and from Europe to Asia at that time.
At that time, global companies were setting up factories in China, where labor and production costs were low, and it was recognized as the "factory of the world." Most of the exports from China were by container, and there were few goods being sent to China, so there were many empty containers on the way back. Kurokawa, the former president of the company, focused on the idea of exporting iron scrap to Asian countries using these empty containers. When purchasing iron scraps by bulk carrier, it is in units of 30,000 tons, but by using containers, it can be shipped in smaller quantities by regular flights, and even inland, if you take the highway, you can go directly to the export port. Hence, we were able to use empty containers to export iron scrap from the United States to Southeast Asian countries.
In December 2009, a turning point for us came, it gave us the right to get the dismantled scrap of the Champlain Bridge, which is 400 kilometers north of Manhattan. With this opportunity, we were able to purchase larger quantities of raw materials directly from US dealers and expanded the container business. We decided to move to the next strategy, seeking the development of Southeast Asian countries while maintaining our base in the US market.
Can you tell us more about the new business model that has shifted from the United States?
The United States and Turkey were once market indicators. It was said that when Turkey went to purchase the scrap, the price of steel went up, and when they stopped purchasing, the price went down. This also affected the European market, focusing on the US and Turkish markets to predict price volatility. But now, China is one making the most steel, and at the same time, dominating the steel market. Therefore, our next strategy is to consider setting up an office in the Southeast Asian region, including China. However, we are still considering this move because the administrations and systems differ greatly from country to country. China and Southeast Asia are very attractive markets for us due to their close proximity to Japan, as it does not take a long time to get there and short business trips are more than possible. There are many employees who can speak several languages, including the director of the overseas business division stationed in Tokyo. This way, the overseas division collects information from each country and conveys it to the entire company so we can quickly recognize the market price and lead to the next decision.
In order to go to Southeast Asia and China, would you be interested in joint ventures, M&A (Mergers and Acquisitions), or perhaps sales offices in the future in these overseas locations?
As mentioned earlier, at the same time as having the idea of establishing a local office, I think it is a good idea to form a partnership or M&A with a local company. Additionally, another idea to deal with the difficulties of overseas travel due to the COVID-19 pandemic, is a partnership with a Chinese company that has expanded into Japan.
With the growth of the Chinese steel industry, corporate growth may outperform existing Japanese scrap companies, and as they have equipment in China, it would be mutually beneficial to partner with them. I think we can create a good business relationship.
Your company rode the ups and downs of the economy and are still standing here today after 114 years. What do you think is your unique advantage as a steel scrap iron processing company? What message would you like to give to potential clients around the world?
I am the fifth president of Fuwa Metal, which has 114 years of history. The first four presidents are from the same family, so it was basically a family-owned business. As the fifth president, I was hired in 1986, I’ve only worked here for 35 years which is only a third of our company's history. The asset of a family business is having strong bonds. Whenever there are hardships, the family members can come together to overcome these hardships. However, family business also has the drawback of over relying on the abilities of a specific person, so the former president tried to change it from a family business to a company. Incorporating the sense of others, it is "management risk management." The philosophy inherited from the former president is "do not hesitate to challenge and don’t be afraid of failure." I would like employees to take on this challenge positively.
If we come back on the company’s 120th anniversary and have this interview again, what goals and dreams would you have liked to accomplished by then?
Foremost, we are a company that provides raw materials to the manufacturing industries, and it is important for us to focus on sales and profits based on that view. However, there are market fluctuations in iron scrap prices, and even if the same quantity is handled, sales will change. Therefore, it is not always the sales that we pay attention to. For example, before the Lehman shock, the average price of scrap iron was $700. But after that, it depreciated to $100 per ton. Due to such large market fluctuations, it is difficult to judge corporate value based on sales alone. The most important thing is the quantity handled. In 2016, when I was appointed president, and in the year 2020, we had reached 800,000 tons of transactions. In 2021, we increased it to 1.2 million tons, and will continue to increase by 100,000 tons every year. Therefore, my target is to increase the transaction volume by 2 million tons by our 120th anniversary.
Currently, with environmental issues such as global warming, SDGs are a hot topic. The Japanese government declared last year that by 2050 Japan will become a carbon-neutral society. This will limit carbon dioxide emissions to the steel industry.
There are two steel manufacturing methods, with the first being the blast furnace manufacturing method that manufactures steel from iron ore, and the second is the electric furnace manufacturing method that can recycle iron scrap raw materials. One interesting note is that the carbon dioxide emissions of the electric furnace process are only one-fourth from the blast furnace treatment. Since carbon dioxide emissions can be reduced by increasing production in electric furnaces, blast furnaces not only in Japan but around the world are shifting to electric furnace manufacturing methods.
In other words, iron scrap is not only a sustainable resource on the ground, but also a trump card to prevent global warming. The demand expanded not only in Japan but also around the world, and iron scrap was thrown into the "competition" of steel companies.
As a member of the iron recycling company, we would like to sincerely face a carbon-neutral society and occupy an honorable position.