Stopping the Okayama open hearths and closing Edogawa (1977)

The habit of changing furnaces at the bottom of a slump

The substance of this decision lay less in replacing open hearths with electric furnaces than in how the timing was chosen. With pollution regulation and the inversion of fuel costs, the end of the open hearth’s life was unavoidable sooner or later. Yet Tokyo Steel put up ¥22 billion in the middle of a third consecutive year of ordinary losses and finished the work before demand returned. That it was filing objections against designation as a structurally depressed industry — which required scrapping equipment — and against the law restricting new investment, while replacing its own furnaces in the same period, shows the order in which this company makes its judgements.

The result was that completion coincided with the recovery in demand, and ordinary profit returned to ¥10.7 billion in the period ended November 1978. But when the same pattern was repeated in the 1990s with the Utsunomiya and Takamatsu renewals, operations did not proceed as planned, and Iketani Masanari said in 1998 that he might have misread the growth in demand a little. The procedure of changing furnaces in the trough of the market doubled capacity when it landed and left only the burden of depreciation when it did not. The Okayama works of 1978 is one side of that swing.