Kobe Steel’s loss is UACJ’s gain; the company plans aggressive automotive expansions

After the controversy on falsified data on aluminium product quality has marred Kobe Steel’s business in Japan, it rival and the world's third-largest producer of flat-rolled aluminium products, UACJ Corporation is taking aggressive steps to expand its automotive capacity. The company is slogging hard to be at per with Novelis and Alcoa, the two global players in the aluminium rolled product segment for the automotive industry.

UACJ's latest plan is to invest 16 billion yen ($141 million) for a new automotive line, quadrupling the company's total Japanese production capacity to over 130,000 tons. The line, announced in October is scheduled to go into operation at the company's plant in Fukui Prefecture in 2020.

UACJ (of United Aluminum Company of Japan) was formed by merging Furukawa-Sky Aluminum and Sumitomo Light Metal Industries, Japan's first and second-ranked flat-rolled aluminium makers in October 2013.

During its last earnings news conference in early November, Mitsuru Okada, Director & President of UACJ said demand for automotive aluminium products is getting a boost from the global growth in electric vehicles, as the light metal aluminium can give better mileage by cutting down battery weight and power. This is turning out to be a motivating factor for UACJ to expand its automotive capacity. A major part of Okada's three-year plan through March 2018 would be to lay the groundwork for future growth.

For the FY ending March 2018, UACJ expects consolidated revenue of 630 billion yen and pre-tax profit of 30 billion yen.

The additional 37 billion yen investment on the expansion of the 55 billion yen plant in Thailand, which started in 2015 to cater to the growing demand for aluminium beverage cans in Southeast Asia is another important project for the company. The expansion of local production is crucial to UACJ's expansion in Southeast Asia, where it expects intense competition from Chinese products.

In Kentucky North America, they have started a joint venture with Dutch aluminium maker Constellium to produce automotive body sheet. The project is delayed after the start of partial production as Constellium is hiring more engineers to achieve more stable production capacity.

UACJ's free cash flow has remained negative since 2013 as a result of aggressive investments. Nevertheless, the company remains adamant about its goals. Japan aluminium industry is under renewed pressure for high quality standards after the falsification of Kobe Steel came to light.

UACJ President Mitsuru Okada, at a Nov. 2 news conference in Tokyo said that UACJ had no quality issues as they had completed their quality inspections in October instead of November. UACJ is preparing itself to grow profits while managing the risks associated with aggressive expansions.