For more than a century, Nippon Carbon has been a pioneer in the carbon industry, having succeeded in industrializing graphite electrodes for electric arc furnaces, whilst also introducing carbon fiber products for the first time in Japan. President, Takafumi Miyashita, explains how, with these innovations, the company has continued to devote its experience and know-how in the field of carbon and graphite by developing value-added carbon products that meet changing societal and industrial needs.
In recent years, we have seen emerging manufacturers such as China, South Korea, or Taiwan who are able to replicate certain products or processes from advanced technologies like Japan or America. Nevertheless, we find that Japanese companies, both large and small, can maintain a very large market share in certain niche segments. In the field of graphite, Nippon Carbon and Toyo Tanso arguably have the most advanced technologies in the world. How do you explain Japanese companies being able to remain competitive and remain as niche leaders in the face of stiff price competition?
Many of the companies that you mentioned at the beginning are some of our clients. We have been pioneers in carbon and isotropic graphite fields; our company has existed for 106 years. There are five companies involved in the graphite electrode market in Japan; the increase includes China and India. The premium products in this field are from Showa Denko, Tokai Carbon, SEC Carbon, GTI, and our company.
Our company’s strategy moving ahead is to be able to compete with Chinese and Indian makers in terms of a high level of quality, cost, and delivery (QCD). We want to integrate these three to contend with our competitors who are able to roll out products at a lower cost. Carbon is utilized in many sectors and Chinese manufacturers are everywhere. Chinese electrode manufacturers are mostly looking to supply domestically and to other similarly cheaper price markets. We are focusing our efforts on supplying electrodes to the domestic market, as well as to Korea and Taiwan. So we are not competing with Chinese manufacturers in a price oriented market. In order to enhance the potential of our business and profitability, we give consideration to the shipping costs that can be incredibly high. Furthermore, we are proactively exporting the insulators for the heat treatment field targeting the US, Europe, China, and we also have a large market that we are supplying to. However, as it is a very niche market, it is not very well-known. According to my estimates, I believe that Nippon Carbon is the greatest manufacturer and exporter of insulators in the heat treatment field.
We are huge exporters and suppliers of carbon products to the semiconductor market. I think we supply 60% of what is used by semiconductor wafer companies. One of the reasons why we are strong in the wafer business is that we can supply all three: insulators, C/C composites, and carbon specialty materials. The Chinese have not been permitted to enter this industry given concerns about the quality standards required. But I imagine that the Chinese quality will start to get better as time progresses and therefore, we are striving not to lose out and must continue to expand and improve our quality even further. That is our direction.
Carbon mainly serves as heat treatment for furnaces, as they are tough environments with temperatures that can go well above 1000ºC and vary widely depending on material. Therefore, a material with a very high thermal durability must be used inside a furnace; normal metals like stainless steel or iron are inadequate. Can you explain to us how your company is able to produce materials that can fit different types of furnaces?
Our expertise is heat-treatment, and as such we are proposing the C/C composite, a reinforced carbon material that prevents distortion, to our global clients. Basically, when we talk about heat treatment, the materials undergo shrinkage or expansion under high temperatures. We are used to dealing with carbon materials that must undergo extremely high temperatures like 2000ºC; so, for us, 1000ºC is low. We are looking to leverage the technologies that we have been able to produce to roll these out. We want to create this from special materials that are 10 times as light, but with the same loading capacity as other metals. When it is at 1000ºC or under, the expansion is less than one millimeter, demonstrating that the distortion rate is very low. This is widely used in the automotive component business, in radiators for example. It is a kind of material that needs to be solid and cannot be subject to great distortion; it needs to stick to very strict standards when it undergoes brazing. The business model and strategy that we employ goes beyond product manufacturing, we also provide suggestions to our clients on how to use the material. It is a combined approach.
We learned through doing interviews with other carbon makers that when such materials are developed, they often don’t have a clear application. There is a whole other part of the business in educating the client as to how to best utilize these materials. Can you tell us a little bit more about how you are able to fine-tune your proposals to your clients?
It has been 10 years since this has become the industry’s standard with regards to automotive component makers. Up until that point, they were utilizing metals even if that meant distorted or defective products. Nonetheless, as a supplier of this kind of product, we successfully captured the strengths of this material. This is called the base tray; with it, we can clearly show the great output that can be derived from this material. In 2003, I presented this product to GIFA, a metal heat treatment exhibition, in Dusseldorf. It was 18 years ago, but I still remember how dumbfounded everyone was. They had no idea what it was going to be used for. The specialty graphite is easily breakable ceramics; in contrast, the C/C composite here is durable. If both of you were to jump on it, it still would not break.
In recent years, we have seen a big change in the materials used for semiconductor wafers because of their applications. Wafers that were traditionally made from Silicon are increasing, especially for power electronics. Likewise, compound semiconductors such as Gallium Nitride or Silicon Carbide are creating different needs in manufacturing, which makes it necessary for producers to rethink their supply chain and materials. Can you tell us a little bit more about your contribution to the compound semiconductor field? Are there any technologies that you are currently developing to cater to it?
The semiconductor is the key when you are starting to incorporate IoT into various products. In Japan, there is a shortage of semiconductors and semiconductor makers indicating that it is a challenge to adequately provide for manufacturers that need them. Due to higher and higher levels of purification needed and in demand from the Silicon semiconductor field, we are exerting more energy into our material R&D. Carbon plays a key role, but it is such a simple material, which compels us to increase our R&D strategy to offer more attractive proposals to our clients.
Silicon Carbide Continuous Fibres like NICARON/High NICARON, have been widely adopted for their various characteristics and durability by the aerospace field. The aerospace field is increasingly complex with very high safety standards. Can you explain to us why this material was selected by aerospace companies? What other applications do you believe that NICARON can have?
NICARON is being manufactured by NGS Advanced Fibers Co., Ltd. It is a part of our subsidiary and a joint venture between the following three companies: Nippon Carbon, GE Aviation, and SAFRAN. There are only two companies in the world that can create S and C continuous fibres. NICARON’s greatest application is in the jet turbines. The larger portion of the engine is not much subjected to heat. The engine case becomes narrower towards the outlet and the thinner areas where the jet turbines are moving, you can see what is called the shroud. The reason why it works well is that it does not become distorted; also, it is lightweight. Some of NICARON’s greatest advantages are its fuel efficiency and safety. If it were not for Covid, the demand for this product, as we have forecasted, would have gained immense profit and revenue. I believe that this product is definitely going to be on the rise even in the post-Covid world, with the increased awareness and efforts on cutting down CO2 emissions and becoming more fuel-efficient.
In terms of other applications for this product, one is for gas turbines. Turbines are not only used in airplanes but also in various areas. Historically, this material has been used in sports like golf shafts or tennis rackets. We are predicting great growth potential across these fields with the different applications of our product. It was important for this product to be supplied for industrial usage. There are areas in which NICARON will be utilized moving forward; however, I cannot disclose them today. Certainly, you can expect it to be on the rise. It is used in rockets, too because interestingly, it can be used in atmospheric conditions. The applications are limitless. It is my hope that its usage will expand on the same level as the carbon fibre.
You have partners in the development of NICARON. Are you looking for more similar co-creation partnerships in the future? If so, what kind of partners are you looking for, and what synergies are you looking to create?
Yes, we are proactively looking for more partners. GE Aviation and SAFRAN are also in the aerospace field. SAFRAN is involved in military research, which means that they are dealing with arms and ammunition. As a Japanese company, it is kind of difficult to be too much involved, and politically, I cannot disclose some information. Also, we want to find viable partners involved in the promising industry in Japan, but other areas in Europe and the US are on our radar as well.
Your company has subsidiaries in Germany, the US, and China. Looking at the future, what markets are you looking to strengthen or expand to? Can you tell us more about your international expansion and how you envision your global footprint?
Japanese manufacturers of our scale often make use of a general trader, or Sogo Shosha. When you use a trading company, however, you are not able to gather accurate and important information about the local market. Since they are more focused on their business as traders, they may not necessarily disclose information that is catered to our benefit. If we were to only go through these general trading companies, then we would not be able to fully respond to the needs of our local clients. We are in the process of creating local offices in Germany, Shanghai, and Houston where we can provide the material and the proposals to our local clients. Unfortunately, the progress has stalled due to Covid. Looking forward, we would also want to have manufacturing capabilities in those three countries. As of right now, they are just sales offices; but through joint ventures, we hope to explore other options. As a result of our joint venture in Germany, we have a local company there for processing, and we have the intention of doing it in the US and China, too.
The IR results of your company show that from 2016 to 2017 your revenue doubled. How do you account for this surge in growth?
We were surprised that something like this could happen. Well, I can say that there was a bubble in the electrode business; it significantly expanded. The price of the electrode as a commodity increased by six times, which led to the expansion of our revenue. The manufacturing process for electrodes can take a long time, the shortest delivery time is six months. So then, what happens is, there is a time lag between the commodity and the product. The greater profit comes from the raw material’s low price and the final product being sold at a higher price. Last year was the opposite, and it was difficult for us. Looking ahead, I think the price for coke as a material or commodity is going to continue to increase because of the high demand, especially as we see the rise of the EV field and hybrid cars. Assuming that the demand increases accordingly, I am sure that it will have a great effect on the electrode business. At present, Nippon Carbon is changing its approach to create a more stable strategy to be able to respond and not be subject to the extremities and differentials that have happened between the price of raw materials and final products. The same thing might happen again if we do not take action. We will be hit hard.
There are different processes in steel making. In Japan, using iron ore and coal as the raw materials make up 70%, the other 30% involves the melting of steel scrap and reusing it. It is said in general that the older style of using steel and coal damages the environment and through CO2 emissions. In that sense, we will see more demand for electrodes along with it. With the rise in demand, I imagine that the price of electrodes will stabilize. Silicon is also used in solar panels which is one of our strengths. We are proud that we can contribute to solar energies, recycling steel, and projects that advance lighter Carbon footprints towards SDGs.
As a listed company, you have a midterm strategy you’re obligated to share with your investors. Can you quickly run us through your current midterm plan and some of the key targets that you are looking to achieve?
In our midterm strategy, 2021 is the last year of our plan. Our two key targets are to reorganise our portfolio and to increase our revenue percentage. Being a company with a long history, we have striven to create an organization that is more flexible in adapting to changing times. The electrodes business has historically been a huge part of our profit, more than half of our revenue. We are looking to become less reliant on the electrodes business. Even before I became the President, that was one of our targets. Now, as we have become a strong corporation, we only rely on it for about 30% of our revenue.
Your company is now celebrating its 106th anniversary. Let us imagine that we come back for your 120th anniversary. What would you like to tell us? What are your goals as the President, and what legacy would you like to have once you step down as the President?
It is 15 years before our 120th anniversary. I imagine that there are going to be great industrial revolutionary changes taking place in the world in 2035/2036, the largest being in the automotive sector. I think the reason why there will be changes like that is to address the environmental concerns that face us. When we think about how we have to address the environmental impact of our actions moving forward as an industry, Nippon Carbon is seriously thinking about what is going to be the most necessary in the world in 2035. Day and night, we are putting our efforts into what will be most needed and how we can help to benefit the people in society. For that purpose, toward our 120th anniversary, I believe that this is going to be our main driver. We take pride in this direction we are taking. Our corporate identity and the philosophy that we have lived by for the past 50 years is to be able to bring together love and Science and provide dreams with our technology. Finally, we are in an era where we can see the fruits of philosophy.
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