January 4, 2013
JFE Steel Corporation

2013 New Year’s Message

2013 New Year’s Message to Employees

Happy New Year and greetings at the start of 2013!

The global economy grew increasingly sluggish last year due to factors including the prolonged debt crisis in Europe and a slowdown weakening the once-strong Asian economy. Economic growth in Japan itself turned negative in July and the supply-demand situation for steel remains challenging worldwide. The planned launch of new steel production facilities in Asia will likely exacerbate oversupply in the near term, so we need to be prepared for that development. In Japan, the backdrop is complicated even further by the so-called “sextuplet whammies” - the high value of the yen; high corporate tax rates; stringent environmental and also labor regulations; ongoing problems in the electricity/power sector; and delayed free trade.

Despite the prevailing strong headwinds, it is incumbent upon us to take action rather than simply wait for trends to become more favorable or for economic stimulus measures to take effect.

Last Year in Review

In 2012, the first year of our fourth medium-term business plan, we strived to improve profit by strengthening cost competitiveness. However, earning capacity fell to an extremely low level as consolidated ordinary income hit a record low for the years since JFE Steel was established and we posted a loss for the first half of fiscal 2012.

Several major accidents occurred last year, some leading to the loss of precious lives. Accidents in the work place simply should not occur and we must engage in some serious soul searching to identify the causes and put in place effective preventative measures.

We also experienced some problems with production in spite of steps already taken to prevent major operational disruptions so more measures must be implemented to ensure stable operations.

On a more positive note, thanks to the united efforts of employees at JFE Steel, subsidiaries and partner companies we not only reduced costs by a total of 120 billion yen but developed new world-leading advanced technologies, which resulted in our receiving the Okochi Memorial Prize for outstanding achievement in industrial engineering and production technologies, one of the most prestigious prizes in the industrial field, as well as other awards.

Key Challenges in 2013

The economy as well as supply-demand conditions are almost certain to affect us adversely in upcoming months so 2013, in which we will mark our 10th anniversary in April, may well be the most challenging year since the company was formed in 2003.

Taking a longer viewpoint however the global demand for steel is forecast to grow, especially in Asia. Our 10-year vision for growth, which we incorporated in our fourth medium-term business plan, remains unchanged. However, to consolidate our position as one of the world’s leading steel suppliers and continue building a sustainable company which earns the respect of our customers, our peers and society in general, it is critical that we maintain earnings even under current economic conditions.

So what exactly are our key challenges this year?

First, as the basic precondition, safety must remain the top priority. According to a Japanese business axiom called the Three Actuals, one must go to the actual place to observe the actual site and the actual situation. In this spirit, I ask workplace leaders to go see for themselves what is actually happening, and to listen to employees. Problems identified must be addressed comprehensively and promptly. We also need to communicate more closely to protect employees at JFE Steel, as well as its subsidiaries and partner companies. Once countermeasures are developed they must be rigorously implemented and the results applied toward further improvements.

With safety controls in place, our next challenge is to improve the profitability of operations in Japan first by implementing countermeasures devised to correct the various operational problems encountered last year. By stabilizing operations we can increase productivity and strengthen the competitiveness of our quality, delivery and costs. In addition, we need to secure expected returns on investments and continue to reduce costs. Furthermore, we must maintain a sound financial position by improving capital efficiency through measures including inventory reduction as well as securing profits.

Our second challenge is to consolidate our position as a leading global supplier of steel. Regardless of how the business environment evolves, the numerical targets set forth in our fourth medium-term business plan must be achieved. Of greatest importance is development of innovative technologies with our eye squarely on how the market will likely develop over 10 years. Each sector, but especially each taskforce and product group, must tenaciously work toward achieving objectives. It also is crucial for us to attract and nurture global-minded human resources. In this regard, I encourage you to take opportunities to study overseas and participate in foreign-language training.

The third challenge is to strengthen cooperation within the JFE Group. Demand in the Japanese market inevitably will decrease over the medium to long term. Under such conditions, harnessing joint strengths to address challenges innovatively and efficiently will allow us to further promote global business development.

Last year we launched a cold rolling and the second continuous galvanizing line (CGL) at Guangzhou JFE Steel Sheet Co., Ltd. In 2013, we will start up a CGL at JFE Steel Galvanizing Thailand Co., Ltd. We will also focus on materializing, in more visible form, the expected benefits of our increasingly close partnerships with JSW Steel and Sahaviriya Steel Industries Public Company, which we created last year.

Our Way Forward

There are three keys to addressing our challenges.

The first is to maximize efforts to seek customers’ satisfaction. All departments need to enhance our unified services and support systems—from business negotiations and product design to production, delivery and quality certification—to ensure that JFE is the brand of choice.

The second key is thorough communication, both internally and externally. I ask each of you to pursue new skills and expand knowledge in other departments, and even in external organizations. I hope you will then take your findings and experiences to promote active and constructive discussion, approaching tasks with fresh inquiring eyes without being limited by past practices.

The last is to think about the future rather than simply focusing on the present. In many cases, more important and more difficult challenges tend to have more distant deadlines and lower priorities. As I requested each and every one last year, please review your current tasks creating time to think in the context of the unfolding future. Corporate resources are limited so we must prioritize resource allocation.

In Closing

Finally, I would like to address labor union representatives.

Meeting the demands of today’s difficult and uncertain business environment requires total unity and commitment. Employees at all levels of the company must work together in partnership, particularly to ensure truly safe workplaces. We intend to move swiftly and boldly, counting on your understanding and cooperation.

In closing my thoughts at the dawn of this new year I believe we must rely first on ourselves to overcome the current challenges - striving to achieve lofty goals even when times are difficult. I am convinced we can overcome this crisis - together as one!

I wish you all, along with your families, prosperity, health and happiness in 2013!