Green steel to meet sustainable development goals

What is the central motivation behind major Japanese companies and how did it come about?

Reflecting on Japanese municipal development, it can be traced back to our experience of defeat in the Second World War. Japan entered the war and the elites experienced war on their own territory, so our actual founder, Koichi Takashima, went to China to fight in the war. Japan lost against the United States and the people were repenting, looking back, reflecting on themselves and why they lost.

Upon reflection, it became apparent that the approach to the development of technology was very different compared to the US, and at the same time, Japanese people were not conscious of Japan’s position on the world stage. So based on these, the population shifted its mindset to rebuild the country.

My father attended the school for the Land Forces and experienced the war. Afterwards, he frequented the University of Osaka’s Engineering Department to learn about technology so he could contribute to the reconstruction of Japanese society.

Likewise, the actual founder of the company, Koichi Takashima, originally had a steel rolling plant together with his father, Hideji, and he tried to push his steel business so that it could be used to improve the world. This phenomenon is seen throughout Japanese leaders, basically reflecting on the damage they caused to the world and making good on that.

So, the Japanese people made efforts to contribute to the world and global society once again. That includes, for example, Sony and other leading Japanese companies. All of them are focused on contributing to the world, repenting on the experiences of the war, and this has been happening now for about 30-50 years since. This idea of contributing and creating a new world has been the driving force behind that effort.

Japan is known to be quite resource poor, with no significant natural resources. Yet it is still the third largest steel producing nation in the world. Can you explain why Japan is still so successful despite being resource poor?

Steel manufacturing technology was developed in Europe during the Industrial Revolution, which happened in England, and Germany is also a leading steel manufacturing country. In around 1890, the Western method of steel manufacturing came to Japan. The Japanese traditionally had their own long history of working with steel, using the tatara method of making steel from iron sand.

Japan is resource scarce, and we cannot procure iron ore, which is the ingredient used in the Western method of making steel. Traditionally, Japanese people have used iron sand, refined it, and extracted the steel element to make knives and swords, for example.

Japanese people have this tradition of working with iron sand, and this is a very fine technology that requires very detailed attention. This long history of using iron sand technology, together with the mass production ability of the Western method, allowed Japanese people to come up with an original method of steel manufacturing and that is why the Japanese are still strong at it.

The famous movie “Princess Mononoke” shows how ancient Japanese people were treating and processing steel from iron sand. The theme of the movie is how Japanese people’s development, in technological terms, is conflicting with nature.

Therefore, my perspective is that Japanese people – due to the lack of resources – did not have any iron ore and had to work on removing iron as sand from granite, and then produce steel from that. In Western mass production technology, we currently use coke as the heating material, but at that time it was charcoal, so the steel was extracted at very low temperatures and the Japanese were able to acquire technology to make good quality steel from this low temperature processing.

Manufacturing of steel rebars

Can you tell us about the products that you make using your electric arc furnaces, and about the competitive advantages of being one of the first companies to utilise this method of production?

We cannot say that we were the very first ones to introduce the electric arc furnace to Japan, but we can say that we were the first ones in the world to introduce the one-furnace system. At the time, it was common to use two furnaces to make sure production could continue if one of them failed, but we introduced a new and very efficient way of using one furnace for the high-speed production of steel.

The big difference between blast furnaces and electric ones is that a blast furnace needs to be operating constantly and the temperature needs to be kept constant. However, with electric furnaces, you can operate them on a demand basis, and with the current shift in society towards carbon neutrality, this method uses electricity, producing a quarter of the carbon emissions of blast furnaces and can be reset multiple times without a deterioration of performance. For these reasons, steel making with electric furnaces is now considered an efficient method, conforming to the “reuse, reduce, recycle” ethos.

Electric arc furnace

You plan to increase your capacity through strategic investments in environmentally friendly processing methods, and this will include M&As. Could you tell us to what extent you expect to be in sync with the Sustainable Development Goals (SDGs) by the time you complete these M&As, and how will you be the go-to partner when it comes to “green steel”?

Our strategy is not to purchase one large facility and have it supply a large region. Our focus is more on having mini mills around the globe, which procure and sell locally. That is the theme of our company. For example, about 32 billion tonnes of steel are currently used in bridges, roads, buildings, and vehicles around the globe and of those, only about 2% is recycled every year, which is about 600 million tonnes, but in the near future, this amount will likely increase by about 200 million or more.

It is estimated that about 50% of steel demand, about 1.9 billion tonnes in total, should be met with recycled steel to meet SDG targets, so with our electric furnace technology, we want to contribute to green steel manufacturing and having mini mills around the globe as our strategy.

The reason we bought a mini mill in Canada is because it was the only mini mill in the Northwest, and it was located near oil drilling, which produces scrap, and our site in Texas, bought via M&A, is located to take advantage of the large amount of vehicular scrap. In other regions, we are trying to locate ourselves where there is steel scrap and demand for our processing.

Your annual report states that you are recycling lithium-ion batteries and other hard-to-process materials like carbon fibre. Can you tell us how your core technology, such as the electric furnace, will be able to overcome the challenges associated with this type of recycling?

Our idea about recycling is not to take the lithium battery or carbon fibre and recreate the original item, but rather to use them in our steel manufacturing process. For example, carbon is an additive when we are making steel and as for lithium-ion batteries, we melt them and remove the steel to be recycled. The residue, which represents about 10%, will be made into slags, which are recycled into things like pavement material for roads; it is recycling and reusing, but in a different form, so you could call it “repurposing”.

Our company’s strength as a steel manufacturer is being able to have impurities in our steel stock, but at the same time, retain high strength and high tensile capability. Companies like Nippon Steel and JFE Steel are very particular about making pure steel from iron ore. They try to make steel as pure as possible, whereas we go in the other direction. We can accept low-grade scrap, but still create steel stock that is appropriate and applicable to construction, which is more of a commodity.

When recycling scrap, the scrap is not pure. It can sometimes contain other chemicals and copper or other types of metals. Rather than focusing on purifying and refining to have a higher purity of steel, we focus on making the steel stock with impurities stronger and more usable. That is why we can do things like take medical waste and use that in our steel production.

There is a synergetic effect in having two different lines of business – the steel manufacturing and treatment of industrial and medical waste, as well as batteries. Our customers, waste generators, want us to render the waste harmless, so we get about ¥1 to 1.5 billion from the waste processing operation, and we can take that waste and make steel from it. It is a win-win situation.

What are your expectations for your harbour construction business in Vietnam? Are you looking to replicate the business in other East Asian countries?

The reason we have a harbour and port business in Vietnam is because we have a factory nearby. We received approval from the Vietnamese government and acquired a 65% share of the development there. Usually, it is not feasible to go to ports or harbours and perform development there, so we are not seeking to expand into other countries.

We have been working on this harbour business for 20 years now, about 200,000 square metres has now been developed and we still have 200,000 square meters more to develop. On top of that, we have our casting business in Vietnam, which makes ductile cast iron.

Can you tell us which locations you are looking to expand into, and how will they balance your business in future as you look to increase your global reach?

In terms of the US, this is our third time entering that market. It is not that we failed twice in the past, but rather that the Japanese domestic financial situation was not good, so we had to sell. When we purchased Florida Steel, we had four locations in the US in 1992, but now we only have one. Together with one in Canada, that makes two in North America. Hopefully we can expand that by adding one or two more production facilities so we can fortify our business in North America, where demand for our steel is still prevalent.

In terms of Asia, Myanmar has been our preference in recent years, but with the political unrest in Myanmar, we are at a standstill there, so we are looking into expanding using our localised approach in countries with more stable politics.

Moving forward, what type of co-creation partners are you currently looking for and where would they potentially be located?

Our very first technical alliance was with a Taiwanese company and the founder was very active in establishing technical alliances with overseas companies. It was a good learning experience. The business model at the time was to give technical assistance and receive a portion of the resulting cost savings as a commission.

Kyoei Steel engineers offering technical assistance

We were able to have technical alliances with many countries and many companies. In the past, we had factories in the US, Vietnam, Indonesia, Nigeria and Sudan, and some of those companies were nationalised. Now we are only present in the North American and Vietnamese markets.

We have been focusing on purchasing 100% of the shares from M&As, but now we are looking into investing not only as a majority, but also as a joint venture to expand the market. The purpose is to diversify risk and increase corporate value.

Imagine we come back to interview you again in five years’ time. What would you like to tell us? What would you like to have achieved by then?

The concept of capitalism is shifting with the effects of climate change and changes in society, so the concept and makeup of stakeholders will have changed in the years to come. Our goal as a company is to make ourselves essential to material recycling.

In the same way in which during the COVID-19 pandemic essential workers became important members in society, we want to be essential in contributing to society in Japan and around the world in terms of material recycling. People have always been focused on making and consuming new products, so it is very important to focus on the recycling aspect. By combining business and sustainability, we want to be a company contributing to global society.

Hideichiro Takashima, Chairman of Kyoei Steel (right) and Yasuyuki Hirotomi, President of Kyoei Steel (left)