12 October 2005

Japanese firms gain edge

Japanese manufacturers embarked on their quest to become energy-efficient after the first global oil crisis in the early 1970s, when the nation realized its heavy focus on manufacturing, combined with almost complete dependence on imported oil, made it very vulnerable to sharp oil-price increases.

The Wall Street Journal reported investors around the world have snapped up Japanese shares in recent months, citing reasons ranging from the recovery in consumer spending to the end of the banking crisis. Now, they may want to add energy efficiency to that list.

Japan has few domestic energy sources such as oil and natural gas, and since the 1970s, basic-materials manufacturers here have been investing money and effort in saving energy.

Japanese steel companies and paper producers, among others, have tinkered with their production lines so they function using the least amount of energy possible. Companies have also developed and installed advanced power-generation systems to squeeze the most out of the fuel they use.

Now, as energy prices continue to soar, these companies' quests to be energy-efficient are giving them an edge, analysts said.

They say Japanese manufacturers are likely to weather the current turmoil in energy costs better than their rivals in other Asian countries, such as China or South Korea, whose manufacturers are less energy efficient.

Moreover, while that may not lead to instant gain in market share for Japanese companies, it could improve their competitiveness over the long term.

Consider the steel industry: To produce a ton of steel, Japanese companies like Nippon Steel Corp. and JFE Holdings Inc. needed 100 units of energy in 2003, while Chinese steelmakers on average required 150 units, U.S. companies used 120, and South Korean manufacturers needed 105, according to the Japan Iron and Steel Federation, an industry trade group. The federation says it compiled the data using information provided by its counterparts from other nations.

The situation is similar in the cement industry. Compared with Japanese cement manufacturers like Taiheiyo Cement Corp., Chinese rivals used 52% more energy to produce a ton of cement, according to a 2002 report from the World Business Council for Sustainable Development, a forum comprising large companies from around the world, including a number of Japanese manufacturers. European and South Korean companies require 30% more energy, and U.S. manufacturers burn 77% more energy to produce the same amount of cement, says the study, the latest available.

Nippon Steel, for example, simplified its manufacturing lines, combining several production processes and thus cutting down on energy use. It went on to install super-efficient energy systems, which recycle power and heat many times during the manufacturing process. For instance, the process collects the heat generated when iron ore first melts and later uses that heat for processes such as molding steel.

During the past decade, the use of materials such as old tires and plastic as energy sources has contributed to lowering the company's reliance on traditional energy sources. To produce a ton of steel, Nippon Steel now uses 29% less energy than it did in the early 1970s. Oil now accounts for 3% of the company's total energy use, compared with 30% in the early 1970s.