January 4, 2017
JFE Steel Corporation

2017 New Year’s Message to Employees
Koji Kakigi
President and CEO, JFE Steel Corporation

Happy New Year, and warmest greetings as we begin 2017!

We have just finished another year of unpredictable change, including the United Kingdom’s vote to exit the European Union and the United States’ election of Donald Trump as its next president. The steel industry’s competitive landscape also changed significantly, including in Asia, where Nippon Steel & Sumitomo Metal Corporation announced it would acquire Nisshin Steel, and Baosteel and Wisco merged.

China’s economic standstill has dragged on, leaving global steel supply in excess of demand, and prices for coking coal and other natural resources suddenly began soaring toward the end of the year, all of which led to significantly higher costs for steelmakers. Furthermore, high-grade steel, in which we have a competitive edge, was severely impacted by sluggish demand in the energy and shipbuilding sectors. In accordance with our medium-term business plan, which entered its second year in 2016, we invested substantially to upgrade our manufacturing capability, but advanced only half way toward our goal of strengthening our facilities and reducing costs.

Our Vision and Challenges

Despite these very difficult conditions, our long-term vision remains unchanged—we still aim to be a global steel supplier that steadily creates new value and grows with our customers. Our four main challenges also remain unchanged from last year:

1. recover and upgrade our manufacturing capabilities;
2. maintain or improve our cost competitiveness and world-class technologies;
3. broaden awareness of the JFE brand; and
4. pass on technical skills to younger personnel to ensure sustainable growth.

Our level of profitability remains low compared to other global steel suppliers, as noted in our earnings forecasts for the fiscal year ending this March. I see 2017 as the critical juncture for overcoming challenges and getting back on a growth track. We must maximize the intended positive effects of the strategic measures that we have been implementing under our current business plan.

This year, we will focus on the following five essential measures.

First, we will focus on stable production, our most urgent task. We have invested more capital than initially budgeted to maintain and/or renew facilities. I expect these investments to start bearing fruit.

Second, we will maximize production and sales benefits of capital investments carried out under our medium-term business plan. The Kurashiki No.3 coke oven and battery A of the No.6 coke oven in Chiba are operating, and work on the Kurashiki No.2 coke oven will be completed this year, resolving prolonged problem with aging coke ovens.

We underperformed in sales of high-grade steel last year due to sluggish global demand in the energy and shipbuilding sectors. This year, however, we will start operating new facilities to manufacture products with high potential, including high-grade steel. We need to move quickly to increase sales of the products from these new lines and put them on a growth trajectory. Similarly, we must realize the benefits of rationalization and capital investment, production increases and improved sales volumes to the fullest extent and at the earliest possible timing.

Third, we will strengthen efforts to ensure that customers recognize the true value of our products and services. We cannot overcome the surging costs of materials merely through cost reduction, so we need to continue communicating with customers more effectively and leveraging the understanding that comes from their trust in us.

Fourth, we will transfer skills and technologies to our younger colleagues, including through measures that take advantage of information technology. In light of the massive generational shift in our workforce, we must continue accelerating efforts to quickly nurture younger employees.

And finally, we need to harness the benefits of the ongoing reorganization of our group in Japan, including better coordination among group companies.

We must make maximum effort to secure continued growth on the basis of these five key initiatives, as well as other measures.

Looking Ahead

Our current situation is no less than an emergency, and I want to convey this urgency to you. We are forecasting a full-year consolidated loss for the first time.

As you work, please focus on two keys: delegate authority to encourage people to try new things, and solve problems proactively through effective two-way communication irrespective of age, generation, position and section. In other words, work creatively.

We must produce tangible results this year, so I am asking each one of you to contribute all of your work experience and knowledge. Let’s join hands to make JFE Steel—a company that we all take pride in—strong and vibrant again.

Ensuring safety and health in our workplaces remains a top priority. Last year, we experienced two serious accidents that tragically claimed two irreplaceable lives. I regret their loss deeply. This year is the last year of our contract with Du Pont, which has been advising us on safety management. Please digest their advice regarding dialogue-based patrols, incident investigations and safety audits. We need to create a workplace where people do not wait for instructions but act on their own initiative if necessary. Last year also was marked by accidents that affected some of our host communities, so we must devote even more energy toward eliminating accidents in 2017.

A number of companies were accused of legal or regulatory violations last year. Please do not think that such cases have nothing to do with us. We must diligently adhere to the basics and make a determined effort to avoid noncompliance.

Finally, I wish to reach out to our labor union. Management earnestly seeks your cooperation as we seek sustainable growth and profitability in a very challenging business environment. We continue to value close communication with the union for mutual benefit.

In closing, please accept my very best wishes to you and your family for a prosperous 2017!