Japan - Kawasaki Steel Corporation Strip Mill Project

RETURN TO RETURN TO ~~~~~~~~~~R E S T R I C T E D REPORTS DESK RELEASE FOR WITHIN ECONOMIC DIEVEL(WPMENT R e p o r t N a. T.O. 125a ONE WEEK ISTIThW T JAN 10 1963 ' This document was prepared for internal use ir the B-nk. Mn making it available to others, the Bank assumes no responsibiily to them for the accuracy or completeness of the information contained herein. K-f- 'ERNATIONAL 2ANK- FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF THE KAWASAKI STEEL CORPORATION STRIP MILL PROJECT JAPAN December 3, 1956 9N 47.2 In 83 78 Department of Technical Operations  CURRENCY EQUIVALENTS it US $ Y360 l rnillion Y $ 2,780 All tons are metric tons of 2,200 pounds. The company's fiscal terms run from May 1 to Oct)ober 31 and November 1 to April 30.  2PPRAMSAL 3? 'T-? ;AJ;TASAK 5T SI?,L COPPORATION SThI? M1LLL PROJECT TABLE OF CONTvNqIS Paragraphs I. Introduction ........... see ....... 0..... 1 - 8 II. The Company ............. , 9 26 III. The Project ....***.. . ..e* , ..... 27 - 42 IV. Proposed Financing Plan 4............... 43 -58 V. Financial Proje,tions 5......e.... 59 - 68 VI. Conclusions and Recommendations . . 69 - 76 APPBMMI CES 1. Properties taken over by the Kawasa.ki Steel Corporation on its Establishment in 1950 2. S-nmmary Balance Sheets .3. Earnings Statements 4. Equipment to be Imported 5. Market Analysis and Sales and Price Fore- casts 6. Financial Projections for Pcviod oJ.gtrip Mill Construction  APPRAISJL O-F THiE KLWMSKI STEE:L CORPORATION SITUPi? EILL PROJECT la IHWCDUCTION The Kawasaki Steel Corporation is one of the leading Japanese producers of plates and sheets. It has a well-established position both Gn the Japanese and the export markets, Ind its management is technically oMnaetent. Ho{wever, its plate and sheet mills are of obsolete typess and their cost s of production are higher than those of modern continuous or sermi- continuous strip mills, 2. In order to modernize their plant and reduce production costsp Kawasaki began in 1952 to construct a modern, fully integrated mill in ta7o stages. The first stage., which includes the necessary steel-making equipment and a slabbing mill, has been completed; but in order to obtain the money to complete this stage, the company has been obliged to incur a substantial debt (rmore than I 10 billion - $30 million equiva'lent) with relatively short maturities (almost all within five years)* The comApany cannot complete its original plan, which involves the addition of the roll- ing facilities needed to convert the slabs into hot and cold strip, without borrowing additional funds. Until it can complete this second phase of its investment program, its facilities will continue to be seriously unbalanced and it will be able to utilize only a small proportion of the capacity of i=ts new slabbing .mill to produce raw materials for its existing plate and sheet mills. 3. In its original loan application to the Bank in August, 1954 Kawa- saki prcposed an expansion program including fully continuous hot and cold strip mills with rated annual capacities of 600,000 tons for hot strip and 4OOfiO0O tons for cold strip. In order to utilize the full capacity of these mills, it planned-to expand its existing pig iron and crude steel capacity substantially. The total cost of this project was estimated at about $59 mallion equivalent. 4.3 lThe company discussed this plan with a Bank mission that visited Japan in the fall of 1954, and agreed that. the project was too ambitious both in terms of the financial resources likely to be available and in terms of the proboable market. In December, 1954 the company.presented its present proposal for a semi-continuous mill, with a nomina. annual cap,.city of 390,000 tons of hot strip and 300,000 tons of cold strip. The cost was then estimated at 835.3 million equivralent, of which Kawasakfi asked the Bank to finance the foreign exchange portion, estimated at $13.8 million equivalent. 5. Bank representatives discussed this plan with representatives of the company through the fall of 19515 They agreed on important revisions in the construction cost estimates. the estimated sales receipts, and the  -2- oro~os