Kobe Steel to Set Up a Automotive Steel Processing Joint Venture in China

Kobe Steel, Ltd. plans to establish a joint venture to process specialty steel wire rod in Foshan, near Guangzhou, Guangdong Province, China. Steel trader Metal One Corporation and wire rod processors Kyodo Shaft Co., Ltd. and Sugita Wire, Ltd., both of which have business ties to Kobe Steel, will also hold equity in the new company.

The joint venture, provisionally called Kobe Wire Products (Foshan) Co., Ltd., will manufacture cold drawn steel bar and cold heading quality (CHQ) steel wire. The processed bar and wire will be supplied to Japanese auto parts manufacturers in China for use in making suspension springs and high strength nuts and bolts, which are both critical automotive parts.

Kobe Wire Products will be established in November with registered capital of 725 million yen. Total investment in the joint venture is projected at 1,812.5 million yen. Kobe Steel is to have a 60% equity share, Metal One 25%, Kyodo Shaft 7.5% and Sugita Wire 7.5%. In the first phase, the venture is anticipated to employ 80 people. Kobe Wire Products will start with a nominal capacity of 15,000 tons per year, which would increase as demand goes up. Production is anticipated to begin in April 2006. The chairman of Kobe Wire Products will be Tomoyuki Kaya, senior officer at Kobe Steel. The president will be Noriaki Hiraga, deputy general manager of the Planning & Administration Department in Kobe Steel's Iron & Steel Sector.

Following strong economic growth in China, automobile production in 2010 is anticipated to grow to 8 million to 10 million units, in comparison to the 4.4 million cars made in 2003. Similarly in 2010, Japanese car maker's production in the Guangzhou area is expected to rise to over 1 million units a year, versus 190,000 cars in 2003. The increase is creating a rapidly growing need for locally procured parts. Japanese auto parts makers in China have been boosting output and a growing number of related suppliers have started production there. Kobe Wire Products will be located in the Guangzhou area, where Japan's three major car makers have set up plants. This area is anticipated to become the biggest base for Japanese auto production in China.

Kobe Steel is renown for its high quality specialty steel wire rod for the automotive industry - a product in which it excels. To strengthen its capability to supply high quality steel, Kobe Steel is planning a number of forward-looking capital investments. It is installing a new continuous caster at its Kobe Works for start-up in September 2006. It also plans to reline the blast furnace. Steel demand in the Asian market is expected to continue increasing and Kobe Steel's Kobe and Kakogawa Works are being positioned to better meet the demand for specialty steel products. With its involvement in wire rod processing in China, where auto makers and parts manufacturers have set up operations, Kobe Steel is aiming to improve customer service by building a flexible, efficient supply network for wire rod products.

Kobe Steel already has wire rod processing ventures in Thailand. With an expanded number of locations, it will be better positioned to service Japanese auto parts makers and further solidify its position as the premier maker of specialty steel wire rod products.

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