JFE Holdings - Company History

In September 2002 Kawasaki Steel and NKK (Nippon Kokan) did not merge. They executed a joint share transfer, placing both companies side by side under a new holding company — JFE — and delisting their own shares the same day. The form was the point: with no surviving entity, control could be pooled at the top first and the operating businesses re-cut afterwards, which is exactly what happened in April 2003, when a company split reorganized the two firms into JFE Steel, JFE Engineering, JFE Urban Development and JFE R&D. The exchange ratio — 0.75 NKK to 1.00 Kawasaki Steel — showed who held the reins: Kawasaki, the financially healthier of the two. Together they made roughly 25 million tonnes of crude steel a year, a match for Nippon Steel, and Japan’s five-blast-furnace order, unchanged since Nippon Steel was formed in 1970, collapsed into three poles. Nippon Steel, Sumitomo Metal and Kobe Steel moved to tie up only afterwards.

What the new company inherited was overcapacity accumulated through the 1990s. Even before launch, in May 2002, it announced the scrapping of Chiba No. 5 and Mizushima No. 1 blast furnaces — 3.5 million tonnes, about a tenth of its pig-iron capacity — and the idling of six or seven of thirty-five rolling lines. Deleting capacity was a pricing strategy: it would make the company “physically unable to accept discounts premised on expanding volume,” as Sudo Fumio, then president of Kawasaki Steel, put it. The reason such capacity had survived at all was the industry’s habit of moving in step. Emoto Kanji, who had told his first press conference as Kawasaki Steel president in 1995 that “we are done marching in line,” later put it flatly: asked what had ruined the steel industry in the 1990s, the only answer was the system of mutual accommodation by which each company adjusted so that nobody’s share moved.

Integration was physical as well as legal. The four works — NKK’s Keihin and Fukuyama, Kawasaki’s Chiba and Mizushima — were re-tied into two, East Japan and West Japan, each under a single works manager; West Japan alone ran at 18 million tonnes a year. Single-management operation had been Emoto’s non-negotiable condition in the merger talks, and a third of the senior staff on each side were swapped at launch, a deliberate avoidance of the Nippon Steel precedent, where the Yawata–Fuji factions were still at odds thirty years on. Synergies were targeted at ¥80 billion cumulative by fiscal 2005. Then the market turned: world crude steel, stuck around 700 million tonnes for two decades, passed 800 million in 2000 and reached 1.05 billion by 2004, and a China-led market of 250 million tonnes appeared out of nowhere. Sudo, who had promised a minimum 10% return on sales against a Japanese post-war industry average nearer 2.5%, saw over 15% in fiscal 2004, and pushed the share of “only-one, number-one” high-grade products from 6–7% of sales at integration to 15% by the first half of that year. In the year to March 2006, JFE earned a record net profit of $3.0B (¥326bn).

The China boom that had made JFE reversed on it. After the September 2008 crash, revenue fell to ¥2.84 trillion in the year to March 2010, and in the year to March 2012 — Europe’s debt crisis, a strong yen and the Thai floods arriving together — JFE posted its first net loss since founding, ¥36.6 billion. Operating margin, about 16.7% in fiscal 2005, sank to 1.4%. The earning power built in the boom years had gone, and the company spent the decade defending rather than expanding: Mada Hajime, another Kawasaki Steel man, took over as president in April 2010 and held the line by squeezing investment.

Abroad, JFE was visibly late. Its one significant partner was Thyssenkrupp, in automotive sheet development; the North and South American allies it had held before the merger had been lost in the steel slump of the 1990s. In December 2009 JFE Steel signed a comprehensive alliance with JSW Steel, India’s largest private producer — licensing high-grade automotive steel technology and supplying semi-finished slabs made in Japan. The logic was defensive as much as offensive: as China and Korea built their own furnaces, JFE’s slab exports there would thin, and India offered a replacement outlet. Nippon Steel had already paired with Tata; this was the counter-move. “In India,” Hayashida Eiji quoted JSW’s Jindal as saying, “supply creates its own demand.”

At home the group was reshaped rather than grown. Universal Shipbuilding was taken in as a subsidiary in 2008, then merged with IHI Marine United in January 2013 to form Japan Marine United and pushed out to equity-method status; JFE R&D was folded into JFE Steel in 2009 and JFE Urban Development absorbed in 2011; Kawasaki Microelectronics was sold to MegaChips in 2012, and JFE Shoji made a wholly owned subsidiary the same year, settling the group into three pillars — steel, engineering and trading. Hayashida, president from 2015, talked of lifting group crude steel from 32 million tonnes to 40 million by 2020 and 50 million by 2025, and said plainly that all of the increase would come from overseas — through alliances and equity stakes rather than mills of JFE’s own. It never arrived. Revenue in the year to March 2019 was ¥3.96 trillion with net profit of ¥164.2 billion: respectable, and nowhere near the boom-year peak.

In the year to March 2020 JFE recorded a net loss of ¥197.7 billion, the largest in its history, on an operating loss of ¥200.9 billion. The following year the pandemic cut crude steel output and the company lost money at the business level for the first time ever. Nineteen years after the merger, the question was no longer cyclical but structural, and it fell to Kakigi Koji, president from April 2019, to draw the plan.

The first move was framed by decarbonization. Blast furnaces emit carbon dioxide in the act of stripping oxygen from iron ore; Japanese steel accounts for around 40% of industrial emissions and 13% of the national total. In September 2020 JFE committed to a 20%-plus cut by fiscal 2030 against fiscal 2013 and carbon neutrality as soon as possible after 2050, and in September 2022 announced that one blast furnace at Kurashiki would be idled from fiscal 2027 and replaced by a large electric arc furnace on the same site. The furnace in question dated from 1969 and had been relined three times; a fourth reline would have cost tens of billions of yen. An electric furnace emits about a quarter as much carbon, and the switch was expected to remove roughly 3 million tonnes from group emissions of about 47 million. Every earlier closure had been justified by surplus capacity. This was the first justified by carbon.

The second was blunter. On 16 September 2023 JFE Steel shut the upstream — blast furnace and steelmaking — at the Keihin district in Kawasaki and Yokohama, taking Japan’s domestic furnace count from eight to seven and annual crude steel capacity down 4 million tonnes to 26 million. Fixed costs fell by $320.3M (¥45bn) a year, against about ¥20 billion in one-off write-offs, and the Keihin land was redesignated as a future earnings pillar across three development districts. “It was an agonizing decision,” said president Kitano Yoshihisa, who took the top job in April 2024 after running JFE Steel through the electric-furnace switch, “but we made it in order to become a leaner business.” The compensating strategy is price, not volume: spreads improved by around ¥5,000 per tonne in fiscal 2023 and the high-value-added share of product reached 48%, the same “only-one, number-one” idea that stood at 6–7% in 2002. Growth spending went to steel’s adjacencies and to allies — a grain-oriented electrical steel joint venture with JSW in 2024, acquisitions in the United States and Australia, an offshore-wind monopile works at Kasaoka. Yet in 2025, with US tariffs and Chinese export overhang cutting demand again, JFE banked a third Kurashiki blast furnace and cut the dividend from ¥110 to ¥80 — a second round of domestic shrinkage, and the price of keeping capital free for the carbon-neutral transition.