Japanese specialty steel producer Aichi Steel Co will start sourcing steel feed materials from India’s Vardhman Special Steels Limited for supplying two of its forging bases in Southeast Asia, beginning from next fiscal year, the central Japan-based steelmaker recently announced.
Through the agreement, Aichi “can contribute to customers’ global competitiveness and strengthen our ability to respond to fluctuations in domestic demand,” it said in a statement.
The arrangement deepens Aichi’s already close relationship with Punjab-based Vardhman while giving the Japanese firm greater supply flexibility in Asia and lowering risk factors such as its exposure to foreign exchange fluctuations, Mysteel Global noted.
Under the deal, Vardhman will supply intermediate steel materials to Aichi subsidiaries in Thailand and Indonesia manufacturing precision forgings for automotive suspension, engine and transmission parts.
The Indian special steelmaker will begin supplying Aichi International (Thailand), located in Thailand’s automotive hub in Chonburi province, and PT Aichi Forging Indonesia, located outside Jakarta in Indonesia starting from April 2023.
In its release, Aichi said it expects that 12,000 tonnes of Vardhman feeds will be shipped to the two ASEAN bases from next fiscal, rising to 30,000 t/y in subsequent years.
The agreement has its beginnings in September 2019 when Aichi concluded a technical assistance pact with Vardhman, a commitment it underscored with an allocation of $7 million to take an 11.4% stake in Vardhman – the first occasion for Aichi to invest in an overseas steel manufacturer. The two signed another technical agreement in September last year.
Aichi Steel is an affiliate of Japan’s largest auto manufacturer, Toyota Motor, which holds a 24% stake in the company. Nippon Steel holds another 8%.
It seems likely that Toyota – which has major vehicle assembly operations in both Thailand and Indonesia – was squeezing Aichi’s forging companies on prices of the forged components it buys and Aichi realised it could not supply forging feed materials cheaply from its bases in Japan.
Its solution was to transfer technology to Vardhman which in turn would supply the feeds from the Punjab, Mysteel Global suggests.
On the most recent data from the Japan Automobile Manufacturers Association, Japanese-invested automakers in Thailand produced 1.45 million units in 2021 and those in Indonesia 1.06 million. In both markets, Toyota and mini-car maker Daihatsu (a wholly owned Toyota subsidiary) were the largest producers, Mysteel Global notes.
Significantly, this seems to be Aichi’s second attempt at establishing an India-ASEAN supply line. In June 2013, the company announced it had reached a technical assistance agreement with Indian steelmaker, Usha Martin Ltd (UML), whereby the Indian wire rope and specialty steel producer would supply special steel bars to Aichi’s forging operations – in Thailand and Indonesia.
Aichi makes no further references to the UML agreement after 2014. Saddled with huge debts and buffeted by a long-running management feud, UML eventually sold its steel business to Tata Sponge Iron, a subsidiary of Tata Steel, in April 2019.
Written by Russ McCulloch, russ.mcculloch@mysteel.com
Note: This article has been written in accordance with an article exchange agreement between Mysteel Global and SteelMint.
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