Kobe Steel executives visited Thailand on Tuesday to attend a ceremony marking the formation of the firm’s joint venture with listed company Millcon Steel.

The JV will produce special grades of wire-rod steel for supply to the Thai automotive industry.

Kobe and Millcon each hold 50 per cent of the JV company, named Kobelco Millcon Steel.

Takashi Gato, senior officer at Kobe Steel, said late on Tuesday that in the initial production phase, the JV plant at Millcon Steel’s complex in Rayong province would have the capacity to produce 40,000 tonnes of special-grade wire rod per month.

“We chose Thailand because automobile sales there are greater [than other markets] and, even though domestic sales in the country have slowed, the company believes the auto sector will get back to normal in the next three to four years,” he explained.

According to the Federation of Thai Industries, auto production in the Kingdom last year reached 1.91 million units, up slightly from 1.88 million units in 2014.

Kobe Steel, which is Japan’s third-largest steelmaker, also has a plant in the US to produce aluminium sheet and another in China for the production of steel sheet.

The company wants to increase its exposure in Asean and the facility in Thailand will help give it sufficient capacity to supply to other countries, Gato said.

Sittichai Leeswadtrakul, president and chief executive officer of Millcon Steel, said the special-grade wire rod would improve his company’s margins, as the special-grade price of Bt30 per kilogram was considerably higher than Bt13 per kilo for normal-grade steel.

Millcon Steel’s profitability will now grow steadily and the company will shift from producing normal-grade steel to high-value steel in order to escape the pricing war in the sector, he said.

In 2020, the producer’s sales revenue from special-grade wire rod will account for 50 per cent of overall income, he added.

At present, 90 per cent of Millcon Steel’s sales revenue comes from normal-grade steel.

The JV with Kobe Steel has received a tax incentive from the Board of Investment.

Hiroya Kawasaki, president and CEO of Kobe Steel, said special-grade wire-rod steel was currently in high demand.

However, responding to market demand on its own was not easy, because the production of special-grade steel required high technology, hence the decision to form a JV with Millcon Steel, he said.

The company will next month send an additional seven staff from Japan to assist the JV operation, he added.