Kobe Steel Cancels Chinese Joint Venture for Aluminum Coil and Sheet Production

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Researched by Industrial Info Resources (Sugar Land, Texas)--Kobe Steel Limited (TSE:5406) (Tokyo, Japan) has terminated the letter of intent for an aluminum joint venture to produce aluminum coil and sheet in China. Kobe Steel announced on December 25, 2012, that it will terminate the deal with Jiangsu ALCHA Aluminum Company Limited (SHE:002160) (Jiangsu, China).

Kobe Steel and ALCHA, a major producer of aluminum-rolled products in China, announced in December 2011 that they had signed a letter of intent to weigh the feasibility for the establishment of a joint venture in Baotou, Inner Mongolia, to produce and sell aluminum coil and sheet.

The joint venture was to be 80% owned by Kobe Steel and 20% by ALCHA. The capital investment for this joint venture was to be approximately 40 billion yen (approximately $457 million). The production capacity was to be about 200,000 tons per year.

When both companies conducted feasibility studies, the two companies became aware of their differences and were unable to reach agreement. As a result, both Kobe Steel and ALCHA had decided to terminate the letter of intent on December 30, 2012.

Kobe Steel has several overseas businesses in place. It has established Kobe Aluminum Automotive Products (China) Company Limited to produce aluminum forgings for automotive suspensions in China. The plant began production in August 2012.

Kobe Steel also established Kobe Aluminum Automotive Products LLC in May 2003 in Kentucky to produce aluminum forgings for automotive suspensions. This company decided to produce cast aluminum bars for air conditioning compressor parts in cars. The start-up for this plant is scheduled for August 2013. And Kobe Steel also has established Kobe Precision Technology Sd. Bhd. in Malaysia to produce aluminum substrates for hard disk drives.

Originally, Kobe Steel was planning to establish the joint venture company in January 2013. Due to the termination of the letter of intent, this will not occur. However, Kobe Steel feels optimistic about conducting the aluminum coil and sheet business in China. The country's aluminum market has strong demand for aluminum sheets for automobiles and beverage cans, which are areas in which Kobe Steel specializes. The company thinks it will continue to expand in the coming years.

Therefore, Kobe Steel is keeping its options on the table on whether to conduct the aluminum coil and sheet projects independently, or to consider conducting a joint venture with another company in China. The company has not ruled out any possibility at this time.

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