Mineral Resources, Energy, Chemical & Electronics - Business overview
Although a third of the Earth's gross mass is composed of iron, a modest amount of iron ore can be mined to the extent that it is profitable.
Iron ore is the main raw material for manufacturing steel products. Since it is not currently produced in Japan, we have no choice but to depend on imports. Japan's annual usage of iron ore for the production of iron products is 120 million tons, while in China it has reached approximately 1.0 billion tons. In the face of China's increasing influence in the international market, further sources of stable resources must be secured by Japan. Sumitomo Corporation both trades and invests in the iron ore business to contribute to the sound development of Japanese industries through a stable supply of iron ore.
Sumitomo Corporation started trading of iron ore in 1950. Just like other large trading companies, Sumitomo started the business as part of a scheme to trade as an agent for Japan's iron and steel companies and take a commission. In terms of investment, Sumitomo Corporation participated in the Savage River iron ore project in Australia in 1965. While putting trading at the center of its iron ore business, Sumitomo Corporation also began investing in upstream interests.
In early 2000, however, Sumitomo's iron ore business centering on trade reached a turning point. The volume of iron ore being imported by China surpassed that of Japan, and the iron ore market became tight. Japanese iron and steel companies experienced an iron and steel recession and gradually started to do the importing themselves, and the function of a traditional trading company was not able to satisfy their needs. Sumitomo Corporation took this opportunity to reinforce their investment business.
It is also important in mine development to construct the several hundred kilometers of infrastructure from the mine to the port from where the mined ores are exported.
After it reached the turning point, Assmang Limited, which had been a supplier to Sumitomo Corporation's trading business for a long time appeared as the target of its first large-scale investment. As a mining company, Assmang is unique in the world because it holds the three major raw materials for iron and steel making, namely high grade iron ore, high grade manganese ore and chrome ore. Based on the fact that it had served as a partner in the trading business for more than 40 years and the trust it had built up with Assmang, Sumitomo Corporation started negotiations to purchase equity stakes in Assmang and was able to acquire them in January 2007.
This was one of the earliest cases of Japan's large investments in South Africa. For Sumitomo Corporation, it was very significant in the sense that it gained entrance to the oligopoly formed by the three major global iron ore producers. Through this investment, Sumitomo Corporation obtained know-how on investing in the iron ore business, including contracts, laws and finance, and this was utilized in its next investment in Brazil.
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