Many Japanese industries share a common pattern of rapid growth based on technical excellence and full international competitiveness. Steel is one of the leaders of this impressive industrial surge. To some this may appear incomprehensible. We all know how the juxtaposition of coal and iron accounted for the growth of the steel industry in its historic centers in England, the Ruhr, or, in this country, Pittsburgh and Birmingham.
Certainly, this is not the pattern in resource-poor Japan, which, moving into the position of the world's number three steel producer, has surpassed West Germany and now trails only the United States and the USSR. As a steel exporter, it stands second only to Germany. All this is very much a phenomenon of the last decade. Japanese steel production was almost nil at the end of World War II and by 1951 had recovered to only 6.5 million metric tons. By 1965 it had reached 41 million tons. By comparison, Germany produced a bit over 36 million tons in that year and the United States 117 million.
Domestic consumption in Japan exceeded 300 kilograms per capita for 1965, a level not far below that of France or the USSR, although still well below Germany and little more than half of the US standard. By 1970 the Japanese expect to raise consumption to 440 kilograms per capita (about the current British level) and increase exports well beyond the 10 million tons of 1965.
This will require a total output of 60 million metric tons by 1970. Such an increase at a rate of 8 percent per year seems modest enough compared with the 13 percent rate maintained over the past fifteen years. The Japanese steel industry has progressed by alternate bursts of growth and deceleration in fitful harmony with more general trends in the Japanese economy. One slow spell affected much of 1965 and early 1966, when Japanese steel production was curbed at the suggestion of the government. However, the industry is again on the ascent, and for the month of September 1966 output soared to 4,225,000 metric tons, a rate sharply above the 1965 figure.
The Japanese steel industry faithfully reflects certain fundamental characteristics of the Japanese economy. Close industry-government cooperation favors the production of basic industrial goods at home in domestically owned plants. These industries scour the world for high-quality raw materials, willingly invest abroad to develop them, have access to economical transportation, process in Japan using advanced technology, and compete vigorously in export markets with their finished products. Steel firms may be linked with the large conglomerate interests which dominate the Japanese economy, frequently combining banking, transport, industry, and commerce, and operating under the benevolent eye of the government in pursuit of their aims. In any case, the result has been a uniquely Japanese industry—one which has proved a powerful boon to Japanese living standards and a rugged competitor in international trade.
The Japanese steel industry operates on a world scale both with respect to raw materials and markets. World War II, which flattened Japanese industry and broke its ties to the adjacent Asian mainland, set the conditions for the steel industry's revival. If Japan was to remain an industrial power, as its population and shortage of land dictated that it must, then it would need to rely upon improved efficiency at all stages—raw materials, transport, production and marketing. It was Japan's good fortune to be building anew at the time of major changes in raw material sources and steel technology which could be taken into account from the outset.
Iron ore is imported from diverse sources. In 1965 the countries of origin were (in percentages): India 20.3, Malaysia 17.8, Chile 17.8, Peru 11.6, United States 6.8. Canada 5.0, and various other countries 20.7. Recent agreements with Australia point to that area as a major future ore source for Japan. The ore imports travel distances up to 10,000 miles. Other countries, which normally import a lower share of their ore requirements, commonly face hauls of 2,000-3,000 miles in contrast to the Japanese average of about 5,500 miles. Such long hauls have compelled the Japanese to seek high-quality ores and to require some initial processing prior to shipment. The result is a superior feed material for Japanese blast furnaces. Coking coal for Japan must travel similar distances from its sources in the United States (43.4 percent of imports in 1965), Australia (41.6 percent) and the USSR (7.2 percent).
In 1965 Japan imported 88 percent of its iron ore and 64 percent of its coking coal. However, competitors in other industrial countries also must rely increasingly on imported ores. The Japanese, who have built with this need in mind, have located all of their new mills on deep water with access to material sources and markets. The older industries such as those in the Ruhr or inland United States cannot adapt so readily to these shifts. Japanese maritime strength also plays an important role in this respect, for the Japanese have become the world's principal builders of large bulk carriers which they operate in multi-angular trade about the world, ensuring versatility and low transport costs for the bulky materials shipped.
The newness of the Japanese industry has other advantages. Over the past decade a revolutionary advance in steelmaking technology has occurred with the introduction of the basic oxygen furnace (BOF) to replace the open-hearth furnace for many types of steel. Japan was quick to adopt this innovation. Well over 55 percent of its steel was produced by the new process in 1965, a larger share than in any other country. Since capital and operating costs of this equipment are low, a considerable competitive advantage has accrued to Japan.
In this respect, as in many others, the Japanese have benefited from their alacrity in adopting technical advances in the industry. They have made dozens of agreements with foreigners (about half of them in the United States) to ensure access to the latest technology. In addition, they have imported much of the equipment for their steel plants from abroad, principally from the United States.
A growing share of the Japanese output—nearly one-fourth of the total in 1965—is exported. Much of this export trade is with the Philippines, Australia, Thailand, Taiwan, Hong Kong, and elsewhere in the far East. However, 44 percent of the total went to the United States in 1965, a figure perhaps inflated by the pressure of US defense needs but one which has caused disquiet in US industry circles. For certain types of products Japanese steel has claimed nearly the whole market, particularly on the US West Coast. It is sold in West Coast and Gulf Coast markets at prices frequently 20 to 40 per cent below comparable American steel. Wary American producers have focused on the labor cost differential as the basis for Japan's competitiveness. Undoubtedly it remains an advantage, although direct wage comparisons can be a deceptive index of unit wage costs.
The Japanese have shown what a skilled and industrious people with energetic leadership can accomplish, even in the absence of necessary raw materials. But their future must seem somewhat more tenuous. Others are learning the formula. For example, in the Netherlands the same ingredients of imported materials and efficient techniques at tidewater location are being combined. The US industry is on an investment binge and may leapfrog to the fore with still larger and more efficient oxygen converters. The very affluence of Japan with its attendant rapid increase in living standards will raise hourly wage rates and the cost of fringe benefits, while the traditional job security of Japanese workers deprives the companies of some of the flexibility of their Western counterparts. Meanwhile, heavy reliance on export markets leaves the industry vulnerable to shifts in the world trading climate.
If any of these considerations worry the Japanese they give scant evidence of it. Major new expansions are underway or contemplated by the country's steelmakers. An example is the new plant that Nippon Kokan plans to build on filled land near Hiroshima. There will be tidewater on three sides to accommodate 100,000-ton ships; Raw materials are to be unloaded on one side and products shipped from the other. Ore from South, America, Australia, Malaysia, and the USSR will be smelted by US and Australian coal. Blast furnaces, oxygen converters, hot mill and cold mill, are in place and will be supplemented by other facilities. Widespread use of computers has held down labor requirements. Initial capacity of 1.5 million tons eventually will go to 8 million tons. Still more recently, Yawata announced plans to build a 4.5-million-ton plant near Tokyo, starting next April; and other companies also are expanding. Whatever its problems, the Japanese steel industry gives no sign of stopping to wait for its competitors to catch up.
