January 4, 2008
JFE Steel Corporation
New Year’s Message for 2008
New Year’s message from the CEO of JFE Steel Corporation
to JFE Steel and Group Company employees at the start of 2008
Faithfully Completing the Second Medium-Term Business Plan and
Achieving New Growth
For the past two years we have worked towards accomplishment of the targets that we set for ourselves in the Second Medium-Term Business Plan, and in the fiscal year ending this March we again look set to achieve very high earnings. This achievement is a direct result of the extraordinary efforts of the entire JFE Steel Group—in the day-to-day production, sales and development activities in which you engage.
Last year we made steady progress in creating an infrastructure that will allow us to maintain growth. In fact, we have nearly finished constructing the new capacity that will allow us to expand sales of high value-added products. Among the highlights of progress in the past year are completion of the No. 4 continuous galvanizing line (CGL) at Fukuyama, the continuous pickling line at Keihin and new seamless pipe capacity at Chita. We are also adding to our production capacity and improving our quality with transfers of “champion technology.” In our international operations, the CGL in Guangzhou, China has begun full-scale production of automotive steel sheets, and last month broke ground on a cold-rolling mill project.
Domestic group companies are also enhancing their infrastructure, securing a foundation from which to achieve annual ordinary income consistently above the 100 billion yen mark.
Four priority issues regarding completion of the Second Medium-Term Business Plan
Fiscal 2008—April 2008 through March 2009—is the year in which we will complete the Second Medium-Term Business Plan. We find ourselves in an increasingly opaque environment, with raw materials prices soaring and ongoing worries about a slowdown in the US economy. Each of our business units must therefore reconfirm progress towards our goals and take steps to ensure that we can achieve any goals on which we have fallen behind schedule—this process of reconfirming and readjusting will secure our foundation as a supplier of high value-added products.
I would like to review some issues of particular importance.
The first is to faithfully achieve the medium-term goal of expanding sales of high value-added products. Throughout the past year we worked on improving our capacity, quality and delivery, and achieved significant results from those efforts. However, we will need to go further if we are to fully address the needs of our customers. I want to boost our hot-rolling capacity to 21 million tons per year with strategic investments in additional capacity, and better capacity utilization rates from more stable operations. Likewise, for steel plate we need to improve our utilization rates and give ourselves capacity of 6 million tons per year in order to meet booming demand from the shipbuilding and construction industries. During the coming year we need to achieve our goal of expanding sales of high value-added products by increasing our primary rolling capacity and fully utilizing new CGLs and other downstream processes. On the research and development side as well, it is vital that we understand the processes and needs of our customers so that we are able to provide them with proposals that offer true benefits. We must use the relationships of trust that have been cultivated with our customers as the means for more effectively grasping their development needs, providing them with stronger, more integrated technology that can address their requirements in both upstream and downstream processes.
The second issue before us is how to adapt to skyrocketing raw materials prices. Global steel production has been expanding for several years, a development that has substantially driven up the cost of raw materials. This trend was particularly prominent last year, when prices soared for main raw materials, for ferroalloys and even for scrap. It remains unclear what shape the markets will take this year. The need to use inexpensive materials will make it doubly important that we minimize defects and increase our output of top-grade products.
The third issue is the reduction of CO2 emissions. This year marks the start of the First Commitment Period under the Kyoto Protocol, during which the world will endeavor to cut emissions of greenhouse gases. The Voluntary Action Plan of the Japan Iron and Steel Federation calls for a 10% reduction from 1990 levels. We ourselves have set a goal during our Second Medium-Term Business Plan of investing 100 billion yen in energy conservation, and efficiently operating the planned shaft furnace at Keihin and other scrap-utilizing facilities. Conserving energy and increasing our scrap utilization rate will enable us to achieve our target CO2 reductions and emerge with one of the best energy rates in the world. Improving the world’s energy conservation will require that we move actively forward in the development and supply of high-performance electrical steel sheets, high tensile strength steel and other products that contribute to energy efficiency and weight reduction, and also new products like solar silicon. We also need to begin developing new technologies for the future that will offer more fundamental improvements in energy efficiency.
The fourth and final issue concerns group companies. One of our goals during the Second Medium-Term Business Plan was to create a group of robust companies. To achieve this goal we renovated our facilities and took steps to improve safety and environmental performance. This year these programs will be completed. At this juncture, we must step back and reconfirm that we have sufficiently strengthened our production systems and our base of earnings to the point where they can support the consolidated earnings of JFE Steel. We need to reflect these findings in our activities this year. I urge you to take further steps to increase the quality of the products and services that you offer, and to continue to move forward on efforts to deliver higher added-value.
Capacity and quality for growing markets
My remarks to this point have focused on priority issues for this year, but we must remember that this is also the year in which we formulate our Third Medium-Term Business Plan.
The steel industry is undergoing global-scale consolidation and realignment, as can be seen by the birth of ArcelorMittal. There are any number of projects on the table to increase both overall capacity and production of high-end products. Oligopolies are growing among raw materials suppliers, and major steel users, such as the automotive industry, are becoming increasingly global in nature. In other words, the steel industry is in a period of dynamic change.
Our priority to this point has been on “shoring up our base” by quickly achieving benefits from integration, enhancing our production infrastructure and strengthening our financial position. In the future, however, we will need to shift our focus to expanding the scale of production to keep pace with market growth if we are to meet the demand for high-end steel from the growing economies of Asia. Boosting our supply capacity to keep up with the increase in demand for high value-added products will require an additional increase of approximately 10% in our domestic production. To reach this level we will need to formulate a global production system that divides responsibilities between domestic and international locations, and begin putting it into place before the year is out. We will also need to continue with programs designed to achieve “quality growth” —these include further vertical integration of the raw materials, distribution and processing segments; improvements in our quality, delivery, and product development; and creation of solutions that increase customer satisfaction. Economies are globalizing and the business environment is changing rapidly. As we implement these programs, we must take care to create strong systems that are able to withstand shifts in the market.
Safety, efficiency and social responsibility in all of our activities
I would now like to turn to issues that I believe we, as JFE Steel employees, must remain aware of at all times.
The first is “safety.” Last year we made a companywide effort to improve safety and there were some signs of progress, but regrettably we were unable to eliminate serious accidents altogether. Safety is fundamental, both to ourselves as human beings and also to society as a whole. Safety is essential to earning trust. When accidents happen, those responsible for management and oversight must identify the real causes and take steps to prevent recurrence. It is also up to everyone working on the frontlines to obey the rules—you must not hesitate to stop equipment when there is a safety risk. Our goal is “zero accidents,” and I urge you to improve your day-to-day communications and ensure that you are faithfully executing your responsibilities.
The second is “restructuring operations for greater efficiency.” Studying and implementing strategies for growth will require a considerable amount of manpower. To achieve this goal with the limited human resources available to us, we will need to boldly restructure our operations for greater efficiency. We organized a promotion team at the end of last year that will take the lead in a companywide restructuring of our operations. I want to ask each of you in your steelworks, plants and business units to inventory your operations and make fundamental changes in the way that you work. It is up to the executive officers to take the lead in this effort.
The third is “ongoing CSR programs.” We established the CSR Council in July 2005 to oversee companywide programs designed to achieve greater rigor in our safety, environment and compliance activities. I believe that these concerns have become firmly established as a part of our thinking processes. We must each be personally aware of our responsibility to obey the rules and adhere to codes of conduct if the JFE Steel Group is to continue to enjoy the faith and trust of society.
Finally, I would like to address some comments to our labor unions.
Many of my remarks have highlighted the need for speed in tackling the business challenges before us. An essential part of this effort will be to work together to solicit opinions from the workplace as quickly and as early as possible. Labor unions represent workers in the mills and production centers and as such their cooperation is vital to the reform and improvement of management. I look forward to constructive dialogue with you again this year.
In closing, I hope that this year will be a fruitful, healthy and happy one for you and your families.