One Steel Mill Holds Key to the Nuclear Revival

Japan
Steel Works may have too much of a good thing

japan-steelJapan
Steel Works was formed in 1907 mainly to produce gun barrels for the
Imperial Japanese Navy. The 18-inch canons that were the main
armament of the Yamato, the world’s largest battleship,
were forged at the company’s Muroran mill on the northern
island of Hokkaido.

The
Yamato was sunk in the 1945 Battle for Okinawa, and the mill
was heavily bombed, but the company, known as JSW, survived to
prosper again making civilian components, especially ultra-large ones
for civilian nuclear power plants. With worldwide expansion of
nuclear power seemingly impending, Japan Steel Works (not to be
confused with Nippon Steel) is in the catbird seat.

The
company is the only steel mill in the developed world capable of
forging the ultra-large reactor pressure vessels. As such it holds
the key to the nuclear revival. If it is true, as the World Nuclear
Association maintains, that at least 130 new nuclear reactors will be
built by 2030, that should keep the Japanese steel workers in this
small seaside town busy for a long time.

“Business
is too good, and at the same time too bad,” says Yoshitaka
Sato, General Manager Forgings and Castings Export Department at JSW.
“We cannot respond to 100 percent of our customers’
requests. Everyone is mad at us; they want 100 percent, but we have
only limited capacity.” JSW’s order book is full to the
end of 2010.

JSW
has already poured more than US$400 million into expansion. That
allowed the plant to increase its capacity for large forgings from
the present five pressure vessels a year to eight and a half by 2010.
That in theory would allow adequate capacity for six to seven
reactors each year over the next two decades according to the WNA’s
base assumption.

But
if the WNA’s best-case scenario of more than 200 new reactors
comes to pass, JSW would be able to serve about 80 percent of the
projected market. That would leave the remaining 20 percent to rising
competitors, or it might force some utilities to delay their
expansion plans until more forging capacity comes on line.

The
company is mulling whether to invest even more millions to expand
capacity. Yet any investment decision in steelmaking capacity must be
made carefully. A 15,000-tonne steel press needed to squeeze 600
tonnes of molten steel into the form of a reactor pressure vessel can
cost US$140 million. “We’re doing a feasibility study
now, and hopefully we can decide in July,” Sato said.

The
latest model “third generation” nuclear reactors, such as
the AP1000 designed by Westinghouse or the European Pressurized
Reactor (EPR) by Areva of France, require the ultra-large forgings.
The fully forged pressure cylinders are safer as there are no welds
to crack, potentially releasing radiation. The reactor vendors have
made the increased safety of their designs major selling points.

Several
American utilities are already moving to secure slots in the JSW
lineup for their projected plans, paying as much as US$100 million as
down payments to secure components that might not be forged for
several years. Among them is NRG Energy Co of Charlotte .N.C., which
is planning to build reactors in Texas. In an unusual move, the
company placed orders before seeking a construction permit from the
Nuclear Regulatory Commission.

The
company’s long memory, of course, encompasses the many droughts
of nuclear power, which is one reason they are proceeding with
caution. That includes the moratorium on building new reactors in
Germany and the Three Mile Island accident in the U.S. in 1979 that
brought a long hiatus to new nuclear power construction orders. No
American company has the capability any longer to produce ultra-large
forging for pressure vessels.

Any
company in such a commanding position is naturally going to invite
competition, not to mention possible takeover bids. JSW has taken
measures to prevent the latter. The company’s stock reached a
peak last July but has declined in value after it became apparent
that the company is prepared to dilute its shares massively in the
event of a hostile takeover attempt.

As
for competition, the company relies in part on its huge head start
and well-deserved reputation for quality. It would “take any
competitor more than five years to catch up with Japan Steel Works’
technology,” says company president Masahisa Nagata.

Sheffield
Forgemasters Ltd. of Britain is moving ahead with a plan to purchase
a 15,000 tonne press that could be used to produce ultra-large
forgings within the next three years, company officials said. The
company is still contemplating how to finance the cost. It is
reluctant to borrow, as it only recently went through a management
buyout.

Sheffield
has one advantage over other potential newcomers in the forging field
as it has the necessary technical quality assurance approvals from
such rating agencies as the American Society of Mechanical Engineers.
It would be fully ready to begin forging large nuclear components
once the press is installed, the company said.

Other
potential competitors to JSW includes Dooson Heavy Industries and
Construction Co. of South Korea, which in May won a US$288 million
contract with Westinghouse to supply two reactors and four steam
generators for the proposed new plant in the state of Georgia. In
addition, Doosan is booked to supply the pressure vessels and steam
generators for two AP1000s at China’s Zhejiang province.

The
Russian manufacturer OMZ Special Steels of St Petersburg is capable
of producing two ultra-large forgings a year and is planning to
expand to three or more. But its business is aimed at the Russian
VVER line of nuclear reactors, and any expansion would be aimed
mainly at servicing this type of reactor both at home and abroad.

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