January 4, 2016
JFE Steel Corporation

2016 New Year’s Message to Employees
Koji Kakigi
President and CEO, JFE Steel Corporation

Happy New Year and greetings as we begin 2016!

This is the first time for me to extend my New Year greeting to you as president of JFE Steel Corporation. I took the helm in April 2015, the start of the JFE Group’s fifth medium-term business plan and also the beginning of JFE Steel’s 13th anniversary. Looking back over the years, in the first half of our existence we made solid achievements thanks to the beneficial effects of our predecessor companies’ merger and the growing demand for steel in China, a new superpower. In our latter half, we have overcome harsh business conditions due to factors such as the Lehman Brothers crisis and the Great East Japan Earthquake. Since our fourth medium-term business plan, which started in April 2012, we have been accelerating efforts to renew facilities, ensure cost competitiveness, and pass on technical skills to younger employees amid a massive generational shift in our workforce. Such efforts have surely strengthened our business foundation.

However, the Chinese economy began to slow down after its historic growth, which has triggered a decrease in global steel demand, the first since 2000. The result has been unprecedented oversupply, which has put tremendous downward pressure on steel prices in the international market. Given that many Chinese mills have fallen into the red in recent quarters, a gradual correction in excessively low steel prices is forecast. But adjustments in China’s demand-supply gaps will require a certain amount of time and will not be easy, considering similar experiences seen in the past in the steel industries of Japan, the United States and European developed countries. In Asia, our main market, competition is forecast to become so intense that steelmakers that are unable to satisfy customers in terms of cost competitiveness and product development could likely disappear from the market through the process of natural selection.

Our Vision and Key Challenges

I see 2016 as a critical juncture for overcoming our intense competition and leaping back onto the path of sustainable growth leading to a great success. To create new value and grow as a global steel supplier, we will implement the strategic measures of our new medium-term business plan without over-emphasizing short-term profitability. If we can think like customers to find what they really require and then satisfy these needs by leveraging our world-class technology, we can achieve sustainable growth. This is why we will continue to focus on improving our technology.

This year we face four key challenges

1. recovering and improving our manufacturing capabilities;
2. maintaining and improving our cost competitiveness and world-class technology;
3. raising awareness of the JFE brand in a broad sense;
4. passing on technical skills to further develop our human resources for sustainable growth.

First, we will continue to devote resources needed to improve our manufacturing base, as seen in our renewal of selected coke ovens and other facilities last year. By resources, I mean both financial and human. One of our priorities is to have younger engineers participate in tasks to improve our manufacturing base and gain invaluable experience that will help guide them in the years ahead.

Second, we will take all possible measures to accelerate our development of new products and new processes to maintain and strengthen the competitive edge of our world-leading technology. We are fostering a corporate culture that urges our product-development personnel to address immediate challenges, as well as mid- and long-term challenges, and we will devote the necessary resources to do this quickly.

Third, our customer- and market-oriented approaches will emphasize raising awareness of the JFE brand. From a mid- to long-term perspective, we will pursue sales strategies that put us ahead of our competitors, including by ensuring that sales and technical divisions work in unison to fully satisfy customers. Overseas, we will expand businesses in new regions and new fields.

Fourth, we will focus on securing and fostering human resources, and passing on technical skills and manufacturing expertise to younger employees, the lifeline of any manufacturer. We depend on you absorbing the know-how of your predecessors and then adding your own wisdom for future generations.

I am confident that meeting these four challenges will enable us to grow sustainably under any condition.

The Way Ahead

But first, all employees need to fully grasp the actual situation that we are facing. Structural gaps between demand and supply persist, so those steelmakers that are unable to satisfy customers in terms of cost competitiveness and product development are not expected to survive. This is why all of you must work in unison and combine your wisdom to make breakthroughs. This will require you to remember three things, as follow.

First, maintain a strong sense of professional ethics without fail.

Second, make time for creative work. Don’t feel that you always must follow traditional procedures.

Finally, communicate with everyone, regardless of age, generation, position or section. This will help all of us recognize and fulfill our roles. For this, I ask all unit managers to lead your teams in facilitating such communication.

If each of you could find greater meaning in your work and take greater pride in our facilities, products and organizations, this would be the first step toward making JFE Steel a company that everyone could be truly proud of.

Of course, our top priority is ensuring workplace safety with no accident. Last year, we experienced three serious accidents that cost two precious lives. I deeply regret the occurrence of these tragic events. We must facilitate even deeper dialogue and communication among all employees to create workplaces where workers can solve problems, even autonomously if required, to make our procedures and facilities safer.

Last year, a number of companies were accused of violating laws and rules. Please do not regard such cases as problems for someone else. We all must consider what we can do to prevent noncompliance by going back to the basics and reaffirming our determination to avoid noncompliance.

Finally, I wish to reach out to our labor union, whose cooperation we sincerely seek as we tackle the challenges of dealing with our harsh business environment. We continue to value close communication between labor and management and working in unison.

In closing, please accept my very best wishes to you and your family for a prosperous 2016!