Sumitomo Corporation "Forming a Scrum" LIVE REPORTS Vol.4 Creating the World’s Future through Aluminum Manufacturing
Sumitomo’s involvement in the aluminum smelting business in Malaysia
Giant plant for aluminum production
The island of Borneo comprises territories of three countries: Indonesia, Malaysia and Brunei. A giant smelting plant is located on the island in the Malaysian state of Sarawak. The plant is approximately one kilometer long, facing the South China Sea, with buildings on a large lot of land the size of five Tokyo Domes. The Bintulu plant is Press Metal Berhad’s flagship plant for aluminum smelting.
The plant was built in 2012. A new line was added to the site in 2015, and the facility currently has an aluminum smelting capacity of 640,000 tons per year. Another plant in Sarawak, the Mukah plant, brings the combined annual smelting capacity to 760,000 tons. This is one of the largest capacities of any aluminum smelting facility in Southeast Asia.
Sumitomo Corporation has an equity stake in this aluminum smelting project.
Material supporting a recycling-oriented society and new industrial sectors
Aluminum is a relatively new material, with the smelting process having been established in the 1880s. In addition to being very strong and rust-resistant, it is also easy to process and has high thermal conductivity. As a result, it quickly became established in a broad range of industries and in many aspects of people’s daily lives. Today, it is the metal with the largest demand after steel.
In recent years, aluminum has also attracted attention for its lightweight and recyclable qualities. It is about one-third the weight of steel, and the amount of energy required for recycling is roughly 2% of that used in smelting. Increasing the proportion of aluminum used in an automobile, for example, reduces the car’s weight and increases fuel efficiency. In addition, used aluminum can be repeatedly recycled and reused. The Japanese Ministry of Economy, Trade and Industry has designated aluminum as a resource that supports a recycling-oriented society.
That is not all. The importance of aluminum as a strong and lightweight material is likely to grow even more in the future, in new industrial sectors like space development and robot manufacturing, and for the construction of taller buildings as the world becomes increasingly urbanized. Aluminum can be regarded as the material that will create the future.
Hayakawa joined Sumitomo Corporation in 1991. He initially worked in the division handling precious metals including gold, silver, and platinum, and has a wealth of experience in raw materials trading and domestic sales. After language studies in China and working on an aluminum smelting project in Australia, he returned to the Tokyo head office roughly six years ago. "In addition to investment and finance, the business in Malaysia is supported by specialist divisions like insurance and electric power. Many people in the company have played an important role in supporting the business. Being able to draw on such deep resources is Sumitomo Corporation’s great strengths."
Shifting the business focus overseas
Sumitomo Corporation became involved in aluminum-related businesses in the 1970s. At first, this involved importing aluminum for use in Japan, and exporting aluminum products made by Japanese manufacturers. Trading was the main aluminum-related business, but this business model has changed over the past decade.
"We realized that with the passage of time, many plants involved in aluminum processing were moving overseas, and that we needed to shift the focus of our business overseas as well. In the process, it became necessary to go beyond trading and to increase our investment in aluminum manufacturing projects," says Kazuki Hayakawa of the Light Metals & Products Business Department.
The project with Press Metal Berhad (PMB), Malaysia’s largest aluminum producer, began in 2010 as part of Sumitomo’s investment in this business.
The new challenge of aluminum manufacturing
PMB was originally an aluminum extrusion company that operated in Malaysia and China, engaged in producing long, thin processed materials by extruding cylindrical aluminum billet through a die. Prior to this project, Sumitomo Corporation sold aluminum metal to PMB as a raw material.
In 2009, PMB set up a new company, Press Metal Sarawak Sdn. Bhd. (PMS), in the Malaysian state of Sarawak to launch an aluminum smelting business, which is a further upstream process in aluminum manufacturing. Sumitomo Corporation took a 20% equity stake in PMS in 2010, marking the beginning of a partnership that continues today.
"PMB was looking for a partner with a network through which it could sell its smelted aluminum in various regions. The company chose to work with Sumitomo Corporation because of the relationship of trust we had built through our previous dealings," Hayakawa says.
Overcoming problems to make the partnership stronger
Relationship of trust developed over the course of negotiations
The aluminum smelting process requires enormous amounts of electricity. PMB was able to take up the challenge of aluminum smelting despite its lack of previous experience thanks to the completion of a huge hydroelectric power station in Sarawak. The region experiences one of the highest rates of annual rainfall in the world, and the new power station made it possible to convert these rich water resources into clean energy that would provide a stable source of abundant electrical power. Yoichi Yoshida of the Light Metals & Products Business Department has been involved in the project since the purchase of the equity interest in the Mukah smelting plant, which marked the beginning of Sumitomo Corporation’s participation in the project. Yoshida, who is responsible for the overall management of the aluminum smelting business at the Tokyo head office, recalls the establishment of the partnership with PMB:
"We negotiated for roughly three years prior to our participation in the business at the end of 2010. The person in charge at the time frequently visited the plant and the power plant and checked conditions on the site in great detail, and continued to discuss the business plan and purchase price. They were tough negotiations, but I believe that the process deepened our trust as partners."
Yoshida joined Sumitomo Corporation mid-career in 2008. At his previous company, he worked in investment management and trade operations for the company’s aluminum business. He is now in the 18th year of his career. "The aluminum business in Malaysia is still very new. My aim is to deal with the issues that arise every day, and earn the trust of my coworkers and partners."
Strength of the partnership demonstrated by an accident
In 2012 PMB began building a second smelting plant in Bintulu, and discussions proceeded regarding Sumitomo Corporation’s participation in this project as well. A serious incident occurred just before these negotiations were concluded.
"A problem at the power plant caused a large-scale power outage across the state of Sarawak, and the power supply to the smelting plant was cut off. Without electricity, the molten aluminum inside the smelting pots starts to cool and solidify, and this worst-case scenario is what happened at the Mukah plant. As a result, the plant was unable to operate for the next six months," Yoshida says.
This crisis clearly demonstrated the strength of the partnership. The person responsible from Sumitomo Corporation immediately began talking to the Tokyo head office and emergency financing was made available with "unbelievable speed," according to Yoshida. While providing this financial support to the project, Sumitomo Corporation also started negotiations with the local power company to prevent a reoccurrence of the power outage, so that a similar situation would not occur at the new plant about to start operations in Bintulu.
"Sumitomo Corporation staff from the electric power business and insurance division went to Malaysia and participated in the discussions. Everyone worked frantically to ensure that this would not happen again."
No concerns regarding this partnership
This incident further increased PMB’s trust in Sumitomo Corporation, as a general trading company with capabilities to support the partnership in terms of funding, human resources, and negotiations.
"A perfect joint-venture project" is how Dato’ Koon Poh Keong, the CEO of PMB, describes the current partnership.
"PMB is a young company, having been established 30 years ago and having launched its aluminum smelting business just six years ago. By contrast, Sumitomo Corporation has a long history and a wealth of experience. Every day we are learning from Sumitomo Corporation how to manage our business so it will be able to continue over the long term."
Mr. Koon Poh Keong says that having PMB manufacture aluminum in Sarawak and Sumitomo Corporation use its sales network to supply that aluminum to countries in North America, South America, and Europe, as well as to South Korea and Japan, is a form of cooperation that functions ideally.
"With each party fulfilling its respective roles, we approach the business with mutual respect. I have no concerns regarding this partnership."
At the same time, Yasushi Miyachi, who has been seconded from Sumitomo Corporation to this joint venture and is involved in the project’s management in Kuala Lumpur, notes "We are also learning from PMB every day.
"PMB has been involved in aluminum processing in China for a long time. The company has solid technologies for efficiently manufacturing competitive products while controlling costs."
PMB has built up a wealth of expertise regarding plant management in China, often described as the "world’s factory," and Sumitomo Corporation is a general trading company with global networks for raw materials procurement and sales. The partnership between these two companies is now entering a honeymoon period.
Sumitomo Corporation employees praise Mr. Koon Poh Keong for his hands-on management style, passion, and pragmatism. A Malaysian citizen of Chinese descent, he manages the PMB group together with his three elder brothers. "The most important thing in business is sincerity. You always need to be sincere with customers, employees, and partners. This is the fundamental principle that I always follow."
Miyachi joined Sumitomo Corporation in 1998, and has worked in aluminum-related businesses since then. After language studies in China and secondment to an operating company in Osaka, he currently works at PMB’s office in Kuala Lumpur. "Our mission is to use Sumitomo Corporation’s global network to make Press Metal products a global brand."
Steady effort needed to build long-term relationship of trust
Bringing together diverse employees
Roughly 2,500 employees work at the Bintulu plant. These include people from many different countries and ethnic groups in addition to Malaysians, including people from China, Myanmar, Indonesia, Bangladesh, and Nepal.
Hiroki Yoshida, who has been seconded to the plant from Sumitomo Corporation and together with PMB staff is responsible for the plant’s management, says, "To be honest, it is quite difficult to bring employees with different languages and cultures together. We hold Chinese classes at the plant so that as many people as possible can communicate in the same language, and we also hold festivals to celebrate the cultures of various countries and ethnic groups to promote mutual understanding.
"Sumitomo Corporation has equity stakes in factories around the world, and has hands-on experience in plant operations. We are using that knowledge, expertise, and information here at the Bintulu plant. You can really feel how much more smoothly things run now compared with when operations started four years ago."
Yoshida joined Sumitomo Corporation in 2007, and from 2010 was with the Light Metals & Products Business Department, responsible for the aluminum business in Australia. After that he worked at PMB’s head office for two years, and is currently seconded to the Bintulu plant, where he is engaged in monitoring stable operations and efficient production, and in implementing improvements. "My goal is to keep our operations accident-free, and to make the project a globally known company."
Growing in line with Asia’s development
Three factories have commenced operations in the six years since PMB’s aluminum smelting business was launched, and production volume continues to grow.
Hayakawa says: "I think the fact that we have been able to grow so quickly in just six years shows how well the partnership is working."
Hayakawa’s short-term goal is to further enhance product quality while maintaining current production volumes. Beyond that, the next challenge will be to reach a production level of one million tons a year. Sumitomo Corporation employees involved in the aluminum business in Malaysia are unanimous in their belief that this goal is attainable if the relationship of trust between the two companies continues to deepen and grow.
No partnership between two companies with different cultures and histories can ever be perfect. In business, there will always be differences in the two companies’ interests. This makes it all the more vital to have clear, common goals and to build on the relationship of trust every day.
According to Mr. Koon Poh Keong, "Sumitomo Corporation is extremely good at planning its businesses from a long-term perspective. My hope is that we will also take this long-term approach to heart, and that the partnership will continue for a long time."
Sumitomo Corporation has the same hope. In addition to Asia, which continues to develop economically, the company believes that global demand for aluminum is certain to grow in the years to come. Sumitomo Corporation will continue to work to support that development, and to grow together with its partners.