* Firms beef up higher margin materials to stabilise earnings
* Sumitomo Metal to spend $153 mln on battery materials plant
* JX eyes increased output of materials for electric vehicles
By Yuka Obayashi
TOKYO, Dec 20 (Reuters) - Stung by years of falling base metals prices, Japanese mining and smelting firms are investing hundreds of millions of dollars in specialised materials used in electric vehicles, smartphones and a host of everyday electronic devices.
Companies such as Sumitomo Metal Mining and JX Nippon Mining & Metals, a unit of JX Holdings, are seeking a steady revenue stream in the face of narrow smelting margins and recent heavy write-offs on base metals mines.
The firms hope to cash in on a push by global automakers into electric vehicles as well as new uses for their metals in the coming era of the Internet of Things when everything from screwdrivers to cars is expected to be linked to the Internet.
"We want to stabilise our income by nurturing our materials operation into our third business pillar [along with mining and smelting]," Yoshiaki Nakazato, President at Sumitomo Metal Mining told an analyst meeting.
Specialised materials made from metals in the form of powders, foil and plate to make super-thin film are used in products from batteries for electric vehicles through to appliances like smartphones, airconditioners and rice cookers.
They command high margins due to the difficulties of manufacture and the need for high performance.
Sumitomo Metal, Japan's biggest nickel smelter, is set to invest 18 billion yen ($153 million) to boost output of cathode material for Panasonic's electric vehicle lithium-ion batteries (LiB) to meet demand from Tesla Motors.
With electric vehicle (EV) sales expected to rise sharply, research firm Fuji Keizai sees the amount of cathode material used in onboard LiBs jumping nine-fold by 2020 from 2014. The material used in cylinder LiBs, used in Tesla's EV battery along with mobile phone chargers and other devices, will nearly double by 2020.
"The business environment is headed in a positive direction as Toyota Motor is reportedly entering the EV market by 2020," Nakazato told last month's meeting, following local media reports the world's top-selling automaker is looking at mass producing long-range EVs by 2020.
The move comes as the United States, China and European countries are encouraging automakers to make more all-electric battery cars as they push alternative energy strategies.
JX also hopes to capitalise on the growing smart car market.
The nation's biggest copper producer plans to start mass production of hyper tin, a new plating used in connectors between electronic parts in smart cars and other devices, at a plant near Tokyo in fiscal 2017/18, followed by a new production line at a plant in central Japan, a company spokesman said.
It is also looking at boosting production of semiconductor targets, used to make metal thin film just several billionths of a metre thick, and rolled copper foil.
A common concern is that rapidly changing technology in electronics and automobile equipment means specific materials may become either commoditised or quickly outdated.
"The materials or the parts which are used now may not be used some years later. So we need to keep up with these changes and stay ahead of competitors," said an official at a base metals company, who asked not be named.
However, analysts said the sector was set to grow.
The changes at Sumitomo Metal could help it more than double recurring profit from its material business to 14.4 billion yen ($123 million) by 2018/19 from three years earlier, said Daiwa Securities' analyst Shinichiro Ozaki.
"Sumitomo Metal is making the right moves as stronger materials will help it diversify the risk of profit swings, and because the materials market has growth potential," he said.
Mitsubishi Materials is also reinforcing its downstream businesses, buying a UK firm for about $300 million in September to broaden its copper processing business with a focus on automobiles and medical equipment.
Smaller rivals Dowa Holdings and Furukawa Co Ltd are investing in research and development for electronic materials.
($1 = 117.2900 yen)
(Reporting by Yuka Obayashi; Editing by Richard Pullin)