Japanese Copper Fabricating Industries in Asia

JapaneseJapanese CopperCopper FabricatingFabricating IndustriesIndustries inin AsiaAsia

International Wrought Copper Council Joint Meeting in Seoul May 11, 2009

The Furukawa Electric Company Limited Mitsuyoshi Shibata

1)1)1)BriefBrief Brief IntroductionIntroductionIntroduction ofofof FurukawaFurukawaFurukawa ElectricElectricElectric 2)2)2)JapaneseJapanese Japanese WireWireWire andandand CableCableCable IndustryIndustryIndustry ininin AsiaAsiaAsia 3)3)3)FurukawaFurukawa Furukawa’s’’ss ExodusExodusExodus 1:1:1: AutomotiveAutomotiveAutomotive WireWireWire HarnessHarnessHarness AssemblyAssemblyAssembly 4)4)4)JapaneseJapanese Japanese ACRACRACR CopperCopperCopper TubeTubeTube IndustryIndustryIndustry ininin AsiaAsiaAsia 5)5)5)FurukawaFurukawa Furukawa’s’’ss ExodusExodusExodus 2:2:2: ACRACRACR CopperCopperCopper TubeTubeTube

Founder, Mining・Smelting・Refining

Ichibei Furukawa

Nippon Light Metal Furukawa Co. Mining・Smelting・Machinery Aluminum

Furukawa Electric Wire & Cables・Non Ferrous Metals

ADEKA

Chemicals・Food Fuji Electric Power Electric Devices

Yokohama Rubber Fujitsu Rubber・Tires Zeon Corp. Computers・Telecom Devices Petrochemicals・Plastics

CompanyCompany name:name: The The FurukawaFurukawa ElectricElectric Co.,Co., Ltd.Ltd. President:President: Masao Masao YoshidaYoshida Foundation:Foundation: 1884 1884 NetNet sales:sales: JPY JPY 1,1741,174 billion billion (FY2007)(FY2007) Employees:Employees: 37,669 37,669 (as(as atat endend ofof Mar.Mar. 2008)2008)

● ● ● ● ● ● ● ● FURUKAWA ELECTRIC EUROPE LTD.(FEEL) ● ● ● ● ● ● ● ● ● ● ● ● ●● ● ●● ● ●● ● ● ● ● ●● ● ● Operation base: 67 bases over 18 countries ● ● ● ● ● ● ● ● ●● FURUKAWA SHANGHAI LTD.(FSL) ● ● ● ● ● ● ● ● ● ● ● ● ● FURUKAWA ELECTRIC HONG KONG LTD.(FEHK) ● ● ● FURUKAWA ELECTRIC SINGAPORE PTE.LTD.(FES)● -Asia-Asia：：4949 ● -- American American Continent: Continent: 13 13 -- Europe Europe：：55

2000: Precious strip Plating Foil Strips plating 201x: First in the world Ultra-thin, high- strength and high- 1990: 2000: ductility copper alloy Palladium plating “EFTEC-97” First in the world for leadframes 1983: Wires Tin plating 1985: copper alloy for Contact connectors 2006: material 2001: Thin copper alloy wires Copper alloy for CPU pins 1970: 1956: “EFTEC-3” 1884:Copper Electrodeposited refinery business copper foil Super 1969: SCR initiated copper wire rod 1987: Conductivity Research on high temperature superconductivity 1967: Tubes Research on superconducting wires CO2 coolant tubes 1960: 1973: 1995: Copper tubes Insulated Micro heat pipes copper tubes First in the world All RightsRights Reserved,Reserved,for Copyright© heatCopyright© exchangers THE THE FURUKAWA FURUKAWA ELECTRIC ELECTRIC CO., CO., LTD. LTD. 2007 2008 5 Business

ThreeThree core core materials materials across across Five Five business business segments segments

Copper Products(17%) Telecommunications (13%)

Strips & Sheets 40% Photonics Tubes Optical fiber cables & Photonics devices 45% Telecom cables & network components 60% 40% Foils 15% Metals Polymers Energy & Industrial products (25%) Aluminum Products (20%)

Aluminum thin plate for LNG tanker 10% Electronics & Automotive systems (21%)

Aluminum Beverage Can Copper Wire Rod & Plastic tapes sheet Power cables for semiconductor 30% 80% & Foam products 20% General roll sheet and Compressor Automotive Wire harness & Electronics components, wheels Components Magnet Wire and Blanks for hard disk Note: (XX%) shows sales ratio 60% 60% 40% (Excluding Services and elimination to consolidated sales)

FPZ (Zhongshan) PAM FPZ (Zhongshan) PAM SKMC (Shanghai) Furukawa Electric Plated Products SKMC (Shanghai) Furukawa Electric Plated Products Fabricated Tube Products Fabricated Tube Products Wire Rod 20000mt Fabricated Tube Products Fabricated Tube Products Wire Rod 20000mt Strips & Sheet 5000mt Strips & Sheet 5000mt Copper Foil 1000mt Copper Foil 1000mt ACR Tube 2500mt FMW （Wu Xi） SSC （Shanghai） ACR Tube 2500mt FMW （Wu Xi） SSC （Shanghai） CFT （Vietnam） Copper Strip ACR Tube CFT （Vietnam） Copper Strip ACR Tube Wire Rod Capacity;1000mt Capacity;2200mt Wire Rod Capacity;1000mt Capacity;2200mt Capacity;4500mt Capacity;4500mt FSL (Shanghai) FSL (Shanghai) Purchasing Office Purchasing Office

FMT (Thailand) FMT (Thailand) ACR Tube ACR Tube Capacity;2500mt Capacity;2500mt FCFT （Taiwan） FCFT （Taiwan） Copper Foil Copper Foil Capacity;1000mt FEMM (Malaysia） Capacity;1000mt FEMM (Malaysia） MagnetMagnet Wire Wire FES （Singapore） Capacity;1100mtCapacity;1100mt FES （Singapore） Purchasing Office Purchasing Office TMS （Indonesia） TMS （Indonesia） Alpha （Malaysia） Wire Rod Alpha （Malaysia） Wire Rod Wire Rod Capacity; Cu 8800mt Wire Rod Capacity; Cu 8800mt Capacity;5500mt Al 1500mt Capacity;5500mt Al 1500mt OMM (Malaysia) OMT (Thailand) OMM (Malaysia) OMTOMT (Thailand) (Thailand) Fabricated Tube Products Fabricated Tube Products Fabricated Tube Products Fabricated Tube Products All Rights Reserved, Copyright© THE FURUKAWA ELECTRIC CO., LTD. 2008 7 Copper Wire & Cable Production in Japan

1,400,000 1,800,000 Tons pa Millio n J P Y p a

O thers 1,600,000 1,200,000 Building A u to m o tive 1,400,000 Electronic 1,000,000 Power 1,200,000 Telecom Valu e (R H S ) 800,000 1,000,000 Export

800,000 600,000

600,000 400,000

400,000

200,000 200,000

0 0

5 7 9 1 3 5 9 1 3 5 7 9 1 3 5 7 95 95 96 96 96 98 98 98 98 98 99 00 1949 1951 1953 195 1 1 1 1 1 1967 1969 1971 1973 1975 1977 197 1 1 1 1 1 1 1993 1995 1997 1999 2001 200 200 2 2009(E) (Source:The Japanese Electric Wire & Cable Makers' Association)

350,000 to n s 300,000 Im p o rt Export 250,000 Balance

200,000

150,000

100,000

50,000

0 1998 1999 2000 2001 2002 2003 2004 2005 2006

-50,000

-100,000

-150,000

(Source: Japan Electric Wire & Cable Trading Association)

700,000 Others

600,000 Europe IMPORT North America Other Asia 500,000 Indonesia Philippines 400,000 Thailand Vietnam 300,000 China

200,000

100,000

0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

700,000

Others EXPORT 600,000 Europe North America 500,000 Other Asia Malaysia

400,000 Philippines Hong Kong

300,000 China

200,000

100,000

0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 (Source:The Japanese Electric Wire & Cable Makers' Association) Units: million JPY

Number of Operations

350 WORLD Others

300 North America

Europe (14) 250 Asia (11) 200

150

100

0 1975 1985 1995 2000 2005 2006 2007 2008

250 ASIA Korea Singapore 200 India Taiwan Philippine Vietnam 150 Hong Kong Malaysia Indonesia 100 Thailand China

0 1975 1985 1995 2000 2005 2006 2007 2008 (Source:The Japanese Electric Wire & Cable Makers' Association)

ASIA

LOCAL N. A M E R IC A LOCAL N. A M E R IC A SALES 9% 154 Japanese Wire & Cable Operations SALES 9% 154 Japanese Wire & Cable Operations 48% 48% InIn Eleven Eleven Asian Asian Countries Countries in in 2006 2006 THIRD ASIA THIRD ASIA COUNTRIES 14% COUNTRIES 14% 25% 25% 1)1) ASIA ASIA Total Total (154) (154) 932 932 billion billion JPY JPY 2) CHINA (65) 248 billion JPY EUROPE 2) CHINA (65) 248 billion JPY EXPORT TO EUROPE2% EXPORT TO 2% 3) NON-CHINA (89) 684 billion JPY JAPAN OTHERS 3) NON-CHINA (89) 684 billion JPY JAPAN OTHERS 26% 1% 26% 1%

CHINA NON-CHINA LO C AL N. A M E R IC A LO C AL N. A M E R IC A SALES 9% SALES 9% 48% LO CAL SALES 48% LO CAL SALES 53% 53% N. A M E R ICA THIRD THIRD N. A M E R ICA THIRD THIRD 20% COUNTRIES COUNTRIES 20% COUNTRIES COUNTRIES 12% 23% 12% 23% EXPO RT TO ASIA EXPO RT TO EXPO RT TO ASIA EXPO RT TO JAPAN 3% JAPAN JAPAN 3% JAPAN ASIA 39% 24% ASIA 24% 2% 39% 2% EURO PE EURO PE EURO PE EUROPE 1% 1% 1% 1% (Source:The Japanese Electric Wire & Cable Makers' Association)

Wire Rod 12% Wire Harness 25%

Magnet Wire 15%

Building Wire 7% Power Cable 3% Telecom Cable 5% Electronic Wire 33%

Wire Magnet Electronic Telecom Power Building Wire Rod Wire Wire Cable Cable Wire Harness China77429 31125 Korea 0 1 1 0 0 0 1 Taiwan 3 3 5 1 0 1 1 Thailand 5 7 12 3 2 4 4 Hong Kong 0 3 14 2 0 1 1 Vietnam 1 0 6 0 0 0 8 India 1 0 1 1 1 0 5 Singapore 3 2 3 0 0 2 1 Malaysia 2 6 7 1 2 3 3 Philippines 0 2 2 0 0 0 10 Indonesia 5 2 7 0 0 1 8 ASIA Total 20 26 58 8 5 12 42 (Source:The Japanese Electric Wire & Cable Makers' Association) All Rights Reserved, Copyright© THE FURUKAWA ELECTRIC CO., LTD. 2008 13 Production Transfer of Japanese Car Makers

K/YEAR 25,000 PRODUCTION OF JAPANESE CAR MAKERS

20,000 Production In Overseas 15,000

10,000 Production In Japan 5,000

0 1980 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 12,000

10,000 OVERSEAS PRODUCTION OF JAPANESE CAR MAKERS 8,000

6,000 OTHERS 4,000 ＵＳＡＡＳＩＡ 2,000

0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 All Rights Reserved, Copyright© THE FURUKAWA ELECTRIC CO., LTD. 2008 14 Exodus 1-1 (Automotive Wire Harness Assembly)

1st1st1stStageStage Stage (from(from(from midmidmid 1980s1980s1980s tototo midmidmid 1990s)1990s)1990s)

(Background)(Background) Japan-USJapan-US tradetrade frictionfriction andand strongstrong JapaneseJapanese YenYen afterafter PlazaPlaza AccordAccord made made JapaneseJapanese carcar makersmakers acceleratedaccelerated toto transfertransfer productionsproductions inin NorthNorth America.America. ForFor survivalsurvival inin laborlabor intensintensiveive wirewire harnessharness assemblyassembly business,business, wewe neededneeded toto find find anan assemblyassembly locationlocation withwith aa lowerlower cost.cost.

1st1st1stStageStage Stage (from(from(from midmidmid 1980s1980s1980s tototo midmidmid 1990s)1990s)1990s)

(Actions)(Actions)  ToTo startstart wirewire harnessharness assemblyassembly inin thethe GuandongGuandong area area inin China,China, withwith anan OEMOEM partnerpartner inin HongHong KongKong forfor avoidingavoiding businessbusiness risksrisks  ToTo supplysupply wireswires andand componentscomponents fromfrom Japan,Japan, assembleassemble inin China,China, andand shipship backback toto Japan,Japan, utilizingutilizing tradetrade systemsystem inin SouthSouth ChinaChina andand HongHong KongKong  SmallSmall sizesize plantplant withwith oneone tenthtenth ofof laborlabor costcost andand limitedlimited investment,investment, exclusivelyexclusively for for thethe JapaneseJapanese domesticdomestic marketmarket

2nd2nd2ndStageStage Stage (from(from(from midmidmid 1990s1990s1990s tototo earlyearlyearly 2000s)2000s)2000s)

(Background)(Background) FurtherFurther severesevere competitioncompetition inin JapanJapan JapaneseJapanese carcar makersmakers started started toto transfer transfer plantsplants toto AsiaAsia

(Actions)(Actions) 100%100% ownedowned largerlarger sizesize wirewire harnessharness assemblyassembly plantplant inin VietnamVietnam forfor demanddemand inin Japan,Japan, combinedcombined withwith locallocal productionproduction ofof wirewire andand componentscomponents CollaborationCollaboration withwith locallocal assemblersassemblers inin AsianAsian countriescountries forfor locallocal productionproduction ofof JapaneseJapanese carcar makersmakers

3rd3rd Stage Stage (from(from midmid 2000s2000s toto Now)Now)

(Background)(Background) ExpectingExpecting largelarge potentialpotential growthgrowth ofof carcar consumptionconsumption inin AsiaAsia LocalLocal carcar makersmakers expandedexpanded production production inin thisthis regionregion

(Actions)(Actions) TheThe mostmost appropriateappropriate productionproduction forfor globalglobal demand,demand, includingincluding globalglobal productionproduction forfor wirewire andand componentscomponents CollaborationCollaboration withwith locallocal asseassemblersmblers forfor domesticdomestic production production ofof locallocal carcar makersmakers as as wellwell asas JapaneseJapanese

WIRES 1,400,000 WIRES 1,400,000 BARSBARS 1,200,000 1,200,000 TUBESTUBES 1,000,000 1,000,000 STRIPSSTRIPS 800,000 800,000 Tonper year 600,000Tonper year 600,000

400,000 400,000

200,000 200,000

0 0 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

(Source: Japan Copper and Brass Association)

300000 9,000,000 300000 9,000,000 8,000,000 8,000,000 250000 7,000,000 250000 7,000,000 6,000,000 6,000,000 200000 5,000,000 200000 5,000,000

Unit per year 4,000,000

Unit per year 150000 4,000,000 Tonyear per 150000 3,000,000 Ton per year JAPAN 3,000,000 IMPORT 4 Companies 2,000,000 IMPORT 2,000,000 100000 JAPANESE 100000 1,000,000 JAPANESE 1,000,000 0 50000 01994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 50000 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Copper Tube Production at 7 Japanese Operations in Asia CHINA CHINA 2 Ｃｏｍｐａｎｉｅｓ 2 Ｃｏｍｐａｎｉｅｓ

125,000 105,000 THAILAND THAILAND 85,000 3 Companies 3 Companies 65,000

Ton per year per Ton 45,000 25,000 MALAYSIA MALAYSIA 2 Companies 5,000 2 Companies 2002 2003 2004 2005 2006

(Source: Japan Copper and Brass Association)

Period: Decade from mid of 1980s

MarketMarket situations situations

 JapaneseJapanese ACR ACR manufacturers manufacturers transferred transferred production production sites sites to to SE SE Asia, Asia, by by growthgrowth of of the the ACR ACR market market and and appreciation appreciation of of Japanese Japanese Yen Yen  ComponentsComponents makers makers were were asked asked to to transfer transfer operations operations to to supply supply parts parts locally:locally: the the same same structure structure as as the the car car manufacturing manufacturing industry industry

OurOur actions actions

 ToTo establish establish the the fabrication fabrication of of A ACRCR component component operations operations in in Malaysia. Malaysia.  ACRACR tubes tubes exported exported to to Thailand Thailand from from J Japan,apan, but but lost lost price price competitiveness competitiveness duedue to to high high import import duties. duties.  ToTo start start local local production production at at the the strong strong request request of of our our customers customers

Period: From mid of 1990s until now

MarketMarket situations situations

 ACRACR market market surprising surprising growth growth in in China China  JapaneseJapanese ACR ACR manufacturers manufacturers transferred transferred production production in in China. China.  ImportingImporting products products from from China China and and SE SE Asia, Asia, due due to to the the fall fall of of prices prices in in the the JapaneseJapanese market. market.  DemandDemand of of ACR ACR tubes tubes in in China China and and SE SE Asia Asia is is increasing, increasing, despite despite decliningdeclining in in Japan Japan

OurOur actions actions

 ToTo establish establish a a joint joint venture venture plant plant with with Hitachi Hitachi for for ACR ACR tubes tubes in in Shanghai Shanghai  FabricatingFabricating ACR ACR components components operation operation in in Shanghai Shanghai and and Guangdong Guangdong

OpportunitiesOpportunities

 DiffusionDiffusion of of ACR ACR and and increase increase of of demand demand of of higher higher functional functional copper copper tubestubes for for energy energy conservation conservation  GrowthGrowth of of emerging emerging markets markets  DevelopmentDevelopment of of application application of of heat-pump heat-pump technology technology to to hot hot water water supply supply systemssystems

ThreatsThreats and and Risks Risks

 RisingRising labor labor cost cost and and energy energy cost cost  UnstableUnstable political political situations situations  GlobalGlobal economy economy weakness weakness  SuddenSudden change change of of Taxation Taxation  AFTAAFTA  FluctuationFluctuation of of exchange exchange rates rates  HighHigh copper copper price price and and high high volatilities volatilities  MaterialMaterial substitutions substitutions

ProductionProduction ofof coppercopper wirewire andand cablecable inin JapanJapan droppeddropped toto 765765 kt kt (minus (minus 10.6%10.6% yoy)yoy) ForecastForecast forfor 20092009 willwill bebe 705705 k k tonstons (minus (minus 7.9%7.9% yoy),yoy), assumingassuming GDPGDP changechange isis minusminus 4.4%4.4% ProductionProduction ofof brassbrass millsmills inin JapanJapan droppeddropped toto lessless thanthan 810810 kt kt in in 2008,2008, atat thethe samesame levellevel ofof 1982,1982, duedue toto thethe effecteffect ofof thethe globalglobal recessionrecession ForecastForecast forfor 20092009 isis 600-700600-700 kt,kt, sincesince nono recoveryrecovery inin demanddemand isis expectedexpected

(Source:The Japanese Electric Wire & Cable Makers' Association) (Source: Japan Copper and Brass Association)

 InIn the the short short term term each each company company tries tries to to restructure restructure to to reduce reduce surplus surplus inventory,inventory, employment, employment, and and capacity capacity  InIn the the long long term term global global consolidat consolidationion in in various various areas areas of of copper copper fabricatingfabricating industries industries may may happe happenn to to dissolve dissolve surplus surplus capacity capacity resultingresulting from from global global competition competition and and sluggish sluggish markets markets  CriticalCritical circumstances circumstances may may generat generatee new new business business opportunities opportunities for for coppercopper fabricating fabricating industries, industries, such such as as solar solar power power generation generation and and batteries,batteries, hybrid hybrid and and electric electric cars, cars, LED LED lighting, lighting, eco-electronic eco-electronic home home appliances,appliances, and and super super conductivity conductivity by by utilizing utilizing cutting cutting edge edge technologytechnology  AsianAsian markets markets such such as as China, China, In India,dia, Thailand, Thailand, and and Indonesia Indonesia will will no no doubtdoubt drive drive copper copper consuming consuming markets. markets.

AsiaAsia andand ChinaChina areare notnot onlyonly thethe “world“world factory”factory” but but alsoalso thethe “world“world market”market” despite despite weaknessweakness inin thethe worldworld economyeconomy AsiaAsia isis nono moremore thethe exportexport basebase toto USA,USA, EU,EU, andand Japan,Japan, butbut thethe largestlargest consumingconsuming regionregion CopperCopper relatedrelated industriesindustries areare dependentdependent onon thethe AsianAsian marketmarket AsiaAsia isis notnot aa maturemature regionregion butbut isis expectingexpecting furtherfurther developmentdevelopment TechnologyTechnology innovationinnovation forfor anan environmentally-friendlyenvironmentally-friendly societysociety willwill generategenerate newnew coppercopper applicationapplication demands.demands.