January 6, 2020
JFE Steel Corporation
Mr. Kitano’s 2020 New Year’s Message to the JFE Team
Happy New Year and warmest greetings to everyone.
First, I would like to say a few words about safety. Regrettably last year, three serious accidents occurred and the precious lives of four people were lost. I offer again my very deep and sincere condolences. The basic principle that safety is the top priority, above all else, must always govern everything we do. Everyone, particularly those working in our steel works, must proactively and independently implement safe work practices. We are individually and personally responsible for workplace safety, including effective communication.
Last year, the global economy slowed down noticeably. The reasons included uncertainty associated with reciprocal tariffs between the United States and China because of bilateral trade friction and the addition of the United Kingdom’s planned withdrawal from the EU. As a result, the demand for steel declined rapidly. In the ASEAN region, market conditions softened due to an influx of steel materials from nations such as India, Russia and Turkey. In the raw materials market, prices for iron ore remained high due to increased production of crude steel in China. As a result of all these factors, the cost of raw materials was high while the price of finished products was low. Our revenue was also impacted by increased costs for various commodities and services, including for by-products, materials and logistics.
In the time period since we announced our earnings projections for fiscal year 2019, conditions deteriorated so significantly that the steel business could actually post a deficit. It is very hard to predict whether the situation will remain the same or recover, so this year will likely be a challenging one.
In spite of the uncertainty and the challenging conditions, we must remain focused on creating a path toward further growth. Improving profitability is key.
In addition to streamlining operations, reducing costs, fixed costs in particular, and lowering expenses in general, we must also come up with measures that quickly improve profitability by sector and center. Although highly volatile raw materials prices and increased costs for various commodities and services are creating pressure, we need to continue our endeavors to secure sustainable margins by ensuring our customers recognize the value of our products and services.
Our long-term vision remains being a global steel supplier that constantly creates new value and grows together with its customers. However, as we implement our sixth medium-term business plan, we will also promote strategies from new and unprecedented viewpoints. In this regard, there are four points I wish to emphasize.
First, we will make our manufacturing capabilities more robust and resilient because the products they produce are a key source of revenue. In addition to continuing efforts to establish a manufacturing base characterized by stable production and stable operation, we will also endeavor to improve production capacity and expand our range of high-grade products, for example, by constructing the No. 7 continuous casting machine in Kurashiki and the No. 3 sintering machine in Fukuyama.
Second, we will smoothly launch ongoing overseas projects to secure additional revenue. This year, we will begin operating new production lines including a new continuous hot-dip galvanizing line (CGL) at JFE Meranti Myanmar. Significant growth in domestic demand is not anticipated so, although we will also continue working hard to increase sales in Japan, expanding our global production system is essential. We will further utilize overseas iron sources while also leveraging our group’s total technologies and supply chain.
Third, we will proactively harness advanced technologies such as IT and AI. We are already introducing sensors in upstream processes, such as in blast furnaces and sintering, and we are using the newest modeling technologies to visualize furnace conditions. Please play a part in continuing initiatives to expand deployment of advanced technologies.
Fourth, we will seek new and unprecedented viewpoints as we decide on and implement strategy. With our external environment changing rapidly, we must respond flexibly and proactively. Change is the new normal. Conditions that we used to consider abnormal have now become commonplace, so we need to deal with them head-on. It is no longer enough to merely adopt policies based on the past. New and unprecedented viewpoints are required. We need to accelerate our initiatives to develop technologies and make capital investments for enhanced competitiveness in volume market zones, and build optimum production systems that anticipate medium- and long-term trends to shape our industry.
This year we will develop our seventh medium-term business plan. As part of this effort, I want to establish a path that allows all of us to stand closely united to overcome the adverse business environment and achieve steady growth.
I sincerely hope each one of you understands the gravity of our situation and seriously considers ways that you personally can contribute within your own job. There are two points to keep in mind in this regard.
First, let’s maintain our challenging spirit, always ready to tackle new things. Challenging the status quo is essential for growth: maintaining it without constantly assessing whether there is a better way is the first step toward decline. An environment in which efforts to try new things and new ways is encouraged and recognized, without assigning blame for failure, will produce vitality and enthusiasm.
Second, we all must try to think for ourselves what needs to be done, speak up for ourselves, and act on our own initiative. Let’s carefully consider in our own minds what we want to accomplish and what should be done, and polish our communication skills so we can convey our ideas, position and standpoint to others. The power to act and the power to execute are also necessary. We are a young company and the average age of our employees is less than 40. The contribution of our young employees is as important as that of our veteran employees.
To be a company that makes our families and society proud, we need to ensure that our workplaces are safe so that employees can work effectively and maintain their health and wellbeing. I call on all managers to patrol their workplaces daily, confirming the production and maintenance situation on their shop floors and implementing whatever improvements are necessary. When inadequacies are discovered, communicate fully with operators to rectify the situation. For those of you who are operators, please to take to heart the saying do your best in adhering precisely to established rules and procedures. We need to be consistent both in these efforts and in implementing the guidance received from DuPont, which will help us create workplaces where people can act proactively and independently. Unfortunately, we were unable to eradicate accidents last year, I strongly ask you to continue focusing your attention on safety first.
Last year again numerous compliance violations came to light in corporate Japan. Since even one violation shakes the trust that underpins business and threatens the very existence of a company, we must do better.
Lastly, I want to address our labor union. To overcome the challenges we face, a deeper level of understanding between the union and the management is essential. We can overcome the adversity by continuing to work together and join our efforts. I sincerely ask for the union’s ongoing cooperation.
I am grateful to be able to share these convictions with you as we begin a new year. Please accept my very best wishes for health and prosperity for you, and for your families, in 2020.