Kobelco News

Kobe Steel invests in Chinese compressor company

Kobe Steel expands into the Chinese market

TOKYO, May 17, 2011 - Kobe Steel, Ltd. announces that it has acquired a 44.3% equity share in Wuxi Compressor Co., Ltd., based in Wuxi, Jiangsu Province, China, after reaching agreement with parent company Wuxi Victor Group Co., Ltd. The investment will enable Kobe Steel to help meet rising demand for process gas (non-standard) compressors in China.

The acquisition of the Wuxi shares was made through Kobelco (China) Holdings Co., Ltd., Kobe Steel's China headquarters. This was Kobelco (China) Holdings' first investment upon its start of operations in April.

Wuxi Victor Group Co., Ltd. has a 51.5% share in Wuxi Compressor, Kobe Steel has 44.3%, and other investors hold the remaining 4.2%. Established as a state-run enterprise in 1955, Wuxi Compressor was privatized in 1992. Sales in 2010 were 650 million yuan, with pretax ordinary income (also called pretax recurring profit) of 30 million yuan. Capitalized at 92 million yuan, Wuxi had 716 employees at the end of 2010. The president is Yu Wenkai.

Wuxi Compressor is a leading comprehensive manufacturer of compressors. It has received high acclaim from the market for its reciprocating compressors and screw compressors used in the oil refining and petrochemical industries. In 1995, Kobe Steel initially supplied Wuxi with technology for small compressors and in 2003 with technology for reciprocating compressors. Over the many years, both companies have built up a strong relationship, leading to Kobe Steel's equity participation in Wuxi Compressor.

Kobe Steel's investment in Wuxi Compressor will enable the two parent companies to expand their process compressor businesses centered on oil refineries, petrochemical plants, and LNG applications in the energy and chemical fields.

Kobe Steel will furnish Wuxi with its technology for process gas compressors (screw, centrifugal and reciprocating), in which sales to China have been low. The technology transfer will enable Wuxi Compressor to manufacture compressor systems in China from locally procured parts and market them through Wuxi's strong sales network. Sales are anticipated to double in five years to 2015, in comparison to fiscal 2010, ended March 2011.

"This investment in Wuxi Compressor will enable us to add a manufacturing location for non-standard compressors in China," said Executive Vice President Kazuo Shigekawa, who heads Kobe Steel's Machinery Business. Kobe Steel currently makes non-standard and standard compressors in three countries: Japan, the United States and China. "We will make full use of these locations to build an optimum manufacturing network. Actively pursuing overseas business, we're aiming to achieve compressor sales of 110 billion yen in fiscal 2015," said Shigekawa.

A wide variety of compressors is available, based on the method of compression (centrifugal, reciprocating or screw), application and rated capacity. The Kobe Steel Group's compressor business consists of large process gas compressors, which are at the heart of oil refineries, petrochemical plants, natural gas plants, and other types of facilities. Another part of the business is small and medium-size standard compressors, which are widely used in industry in plant utilities. Kobe Steel has also applied its compressor technology in a compact steam-driven generator. Total sales in the Kobe Steel Group's compressor business came to about 70 billion yen in fiscal 2009, ended March 2010.

With overseas sales making up about 50% of total sales in fiscal 2010, the compressor business is one of the more globally advanced businesses in the Kobe Steel Group. In Japan, Kobe Steel manufactures compressors in Takasago and Harima, both in Hyogo Prefecture in western Japan. In the United States, Kobe Steel has two companies - one for non-standard compressors and the other for standard compressors - while in China, one company makes standard compressors.

Kobe Steel is actively making investments to increase manufacturing capacity at its overseas locations. China subsidiary Kobelco Compressors Manufacturing (Shanghai) Corporation is increasing annual capacity from 2,200 units to 3,500 units. Construction is expected to be completed in July. Kobelco Compressors America, Inc., a U.S. unit, opened a new plant in April, raising annual capacity from $50 million to $100 million.

At the Takasago Works in Japan, Kobe Steel built a 4.1-billion-yen large test facility for non-standard compressors. The compressor test facility went into full-scale operation in April 2010, further strengthening the competitiveness of Kobe Steel's compressor business.