One Steel Mill Holds Key to the Nuclear Revival

Japan 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.