January 4, 2022
JFE Steel Corporation

Mr. Kitano’s 2022 New Year’s Message to the JFE Team

Happy New Year and warmest greetings to everyone.

I would like to begin by addressing safety. Regrettably, another precious life was lost in a workplace accident last year. With great sadness, I offer my very deepest and most sincere condolences. Our resolve to do everything possible to prevent accidents must be at the foundation of all our corporate activities.

We cannot grow as a company without improving our safety performance so as CEO I am approaching this year with renewed determination and conviction to create an environment in which you can work with minimal exposure to danger or harm. Our basic principle remains safety as the very highest priority.

Looking back on the past year, the COVID-19 pandemic continued to impact the world, but increasing vaccination rates enabled economies worldwide to begin recovering and export prices have improved substantially. In Japan, economic activity also gradually recovered as vaccines were rolled out and the number of COVID-19 cases fell.

In FY2021, we expect JFE Steel to report a profit for the first time in three years. We are continuing to reflect the higher costs of raw materials in our product prices, and as steel prices have increased internationally we have also raised our export prices in line with that trend. Consistent with JFE Group’s Seventh Medium-term Business Plan we have acted to strengthen our group companies in Japan and worldwide, and to reduce costs.

Yet uncertainty lies ahead. We are faced with a persistent global shortage of semiconductors; limited parts supply due to the resurgence of COVID-19 in Southeast Asia and other emerging economies; and soaring prices for raw materials, metals and scrap. The emergence of new COVID-19 variants and related economic impact are unknown factors that must be monitored.

Priorities for 2022

We expect earnings to recover substantially from FY2021. However, a large portion of the increase will come from inventory valuation gains and other one-time factors rather than from structural improvements in our earnings capability. Also, improved margins are coming from exports so our earnings will be influenced by swings in the prices of both exports and raw materials, both impacted by activity in China and emerging economies.

2022 will be a year of structural reforms, including consolidation of tin plate operations to the Fukuyama district and revamping the No. 6 blast furnace in the Chiba district. We will also relocate various manufacturing activities; build and reorganize production systems including equipment, facilities, and logistics; provide support for employees impacted by the changes; and optimize inventories.

The initiatives in the Seventh Medium-term Business Plan, developed last year, focus on reinforcing our earnings power through pricing, and cost reductions, and by improving productivity and yields. Rising prices for raw materials and other commodities have negatively affected profitability in all our business sectors particularly in domestic markets. In 2022, we will step up efforts to reflect these increasing costs in our selling prices. We also intend to reflect the added value of our products and to review price premiums in our sales and marketing efforts.

The development of carbon-neutral technologies and new digital transformation (DX) initiatives will be accelerated as part of efforts to realize sustainable growth. Companies that do not answer the call to carbon neutrality will lose their international competitiveness and risk going out of business. As considerable R&D outlays and capital investments will be necessary, financial sustainability is a prerequisite.

In line with these overall plans, I would like all of you to focus on the following priorities this year:

First, as we transform toward a leaner, more robust business structure, we will also shift our focus from quantity to quality, including by enhancing our product mix and expanding our margins through more deliberate and considered pricing. We must be especially mindful of improving the profitability of our business in Japan. Doing so means pushing ahead with the cost reductions laid out in our Seventh Medium-term Business Plan, including DX initiatives to improve labor productivity and yields, and aiming to expand per-ton profit on a real basis. Our operations must be profitable in themselves, without being dependent on unexpected external improvements.

Second, we must shore up our financial foundation. All our steelworks must continue improving manufacturing capabilities and stabilizing production and quality, the cornerstones of our business strength. We will invest to maintain our essential operating capability; to improve earnings; to upgrade equipment and to actively pursue growth in areas such as green transformation (GX) as well as DX, while balancing the potential outcomes of such investments against our overall financial soundness. Financing these initiatives will include downsizing our asset base through more strategic allocation of resources and vigorously optimizing inventories based on new rationales and approaches.

Third, we must innovate to achieve carbon neutrality. The JFE Group Environmental Vision for 2050 positions climate-change initiatives as a top long-term priority. Last October, we set up the Carbon Neutrality Committee to centrally identify, and then swiftly and efficiently address, the key carbon-neutrality issues in each of our organizations and project teams. This year, aiming to reduce our FY2024 CO₂ emissions by 18% versus FY2013, we will step up measures to, for example, reduce hot metal ratios, improve blast furnace reduction efficiency and save energy. We will also ramp up development of technologies for new processes under the leadership of the Carbon Recycling Development Dept. and the Advanced Melting Process Development Dept., both created last year. Additionally, to achieve carbon neutrality by 2050, we will draw on the collective knowledge and ability of JFE Steel and the entire Japanese steel industry to aggressively promote world-leading R&D in order to establish ultra-innovative technologies at the earliest possible time, including high-grade steel manufacturing using large electric-arc furnaces and hydrogen-reduction steelmaking.

Fourth, we must utilize DX technologies and accelerate growth overseas. This year we will continue to install sensors in production facilities and use advanced modelling technologies to visualize operating conditions. We will also continue to introduce cyber-physical systems (CPS) on all production lines. For more innovative productivity, we will actively apply DX technologies such as remote systems, automation and robotics, striving to evolve beyond conventional practices at every workplace. We will also increasingly focus on solutions businesses, providing platforms based on our well-established knowledge, skills and data to accelerate growth overseas.

2022 action plan

The four-year term of our Seventh Medium-term Business Plan will be a crucial period for us. We are attempting our largest transformation ever, aiming to make the huge leap forward into a new era of growth through structural reform, carbon-neutrality technologies, DX and overseas expansion. In this regard I would like to emphasize three points.

First, I urge you all to maintain a challenging spirit in tackling problems as they arise. Competitors worldwide are growing and we can no longer rely on our traditional rules, technologies and business methods if we want to stay ahead. Over time, certain tasks become less necessary or even obsolete. Managers and leaders must take the initiative in fully streamlining our work processes and actively instituting new initiatives. Carbon neutrality will be a major challenge but also a big opportunity for growth as we create our new steel business. If you’re a manager or a leader, please talk with your team about the visions of our company overall and for your specific workplace. Encourage your team to accept challenges; praise young employees for taking on challenges and never blame them if their endeavors fail. Instead of playing it safe, I want young employees to accept challenges without hesitation and grow through all kinds of experiences, both successful and unsuccessful.

Second, I want everyone to take the initiative to think, speak up and act without needing to be prompted. Please consider what needs to be done and then how best to communicate and translate your ideas into action. We often encounter unexpected problems that make it seem difficult to accomplish initial plans. This is precisely when your persistence and determination to overcome challenges are needed. Make the effort to think and communicate. With awareness and imagination, you can correct your course as needed. The flexible thinking and fresh ideas of young colleagues can be as important as those of more experienced ones, so let’s all consider what we can do in our respective positions and then take action.

Third, let’s utilize and bring out the potential and diversity of each individual to the fullest. In order to work effectively even in today’s fast pace of change, we need to transform and innovate. Our people must interact to fully utilize diverse value perceptions and knowledge. Diversity and inclusion have vital roles to play, which is why we will continue to promote them as a key strategy. In all workplaces, we must demonstrate respect for different abilities, ways of thinking and working styles. Let’s work to realize everyone’s full potential and accept new challenges.

Together, let’s make our families and society proud by ensuring that our workplaces are safe environments where employees can work, free from concerns about their health and wellbeing. The general superintendent of each works is responsible for ensuring that practices are safe, so I call on all managers and leaders to patrol your workplaces daily, watch operations firsthand and implement improvements whenever required. If something is not right, communicate with your teammates. We must learn from past accidents and make every effort to prevent recurrences. If you are an operator, be thorough and ensure that you work with initiative and discipline.

Our business activities are based on the trust and confidence which society places in us. Please never forget that just one compliance violation could irreparably harm the trust that underpins our business and indeed threaten the very survival of our company.

In closing

Lastly, I have an important message for our colleagues in the labor union. As we work to address the huge changes our company is facing, the union’s understanding and cooperation are more necessary than ever before. If we can continue to work together and communicate closely, I believe we can overcome any challenge so I sincerely ask for the union’s continued cooperation.

In closing, thank you for considering the points and requests I have expressed in this message.

I would like to extend my very best wishes for health and prosperity, for you and also for your families, in 2022.