JFE STEELS Challenge to Sustainability in the 21st Century

1
JFE STEELS Challenge to Sustainabilityin the
21st Century

• June 21,2005
• Masatoshi Nakamura
• Vice President
• JFE STEEL CORPORATION

2
the Steel Cyclical Industry
Fewer Players Tight Metallics with Growing Demand
Profitable Steel Industry
Restructuring Consolidation
Suffered Players Bankruptcy
New Players New Capacity with Limited Demand
Over Production Surplus Metallics
Steel Glut Lean Profit
Over Capacity
3
Steel Industry used to be--
Declining Industry Marginal Industry Dying
Industry Decayed Industry and Smokestack
Industry
the Cyclicality, the Core Problem of the
Steel Industry is Eternal ?
Impossible to Overcome the Core Problem ?
JFE STEELS New Challenge to SUSTAINABILITY
3
4
1. A Glance at the Recent Changein Global Steel
Industry
4
5
(1) Consolidation in Steel Industry
2004Consolidated
1995
2005-2008
Crude Steel Base (Million T)
Arcelor Mittal(ISG) NIPPON JFE(JPN) POSCO BAOSTEE
L US Steel Corus Nucor(USA) Thyssen Krupp
47 43(16) 31 31 31 21 21 20 18 18 297
1 2 3 4 5 6 7 8 9 10
NIPPON(JPN) POSCO(KRA) British Steel(UK) Usinor
Sacillor(FR) Riva(I) Arbed(LX) NKK(JPN) US
Steel(USA) KAWASAKI(JPN) SMI(JPN)
27 23 16 16 14 12 11 11 10 10 150
Mittal Steel 59
Arcelor 47
34
33
34
30
21
Top10 Total (20)
Top10 Total (28)
(? )
6
(2) SHARE of TOP 10 Companies
in Other Industries
More Consolidation will be Realized in Steel
Industry?
JFE Estimate Based on 2004 Data
Overseas Trade
7
(3) Huge Capacity Increase will Lead to
Steel Glut (20052010)
BF More Than 200 Million T Planned Capacity
China More than 100 Million T Estimated
Hot Strip MillMore Than 70 Million T
Planned Capacity
China More than 50 Million T Estimated
CGL Line Over Capacity
Mainly in China and Korea
Commodity Price is Weakening
8
(4) Steel Glut May Recur (All Finished Steel Base)

• Global Apparent Steel Consumption Vs.
• Estimated Finished Steel Production (90Yield
  Base)

(MilT)
Estimate
9
(4-1) Steel Glut ASIAS Flat
Products Case

• PlateHot Rolled Sheet ASIAS Apparent Steel
  Consumption Vs.Estimated Production

Production will be exceeding the demand
Estimate
10
(4-2) Steel Glut ASIAS CGL
Case

• Galvanized Sheet ChinaKorea Apparent Steel
  Consumption Vs.Estimated Production

Production will be exceeding the demand
Estimate
11
(4-3) Inventory Statistics in SE Asia - Reaching
to the Highest Level -
Japanese Related Service Center Monitoring
Malaysia
5
12
(5) Cold Rolled/Coated Products Consumption
Growth Plunges in China
Total Apparent Steel Consumption
Flat Products Apparent Steel Consumption
13
(6) Summary of Recent Changes and Threats
Huge Capacity Increase is Realizing to Lead
Steel Glut.
Chinese Overheated Steel Demand is Cooling Down.

China has Turned into Net Exporter.
Steel Price in Spot Market Started to Decline
Worldwide.
Demand of High-end Steel is Still Strong
Increasing.
Raw Material Cost Increase is the Serious
Hindrance to Steel Industrys Sustainability.

How to Overcome the Core Problem in Steel
Industry?
14
2. JFE STEELS Challenge Differentiated
Strategies in Operation, Products, and
Marketing
14
15
(1) Efficient JFE STEEL Started in 2003
Blast Furnaces 11? 9

• Optimal Production Allocation
• Increase Capacity Utilization

Downstream EGL 5 ? 3 CGL 12
? 11 ETL/TFL 6 ? 4
19Million T/Year
8Million T/Year
West Japan Works
6
East Japan Works
EGL 2 CGL 7 ETL/TFL 3
3
EGL 1 CGL 4 ETL/TFL 1
16
(2) Maximum Facility Utilization
Crude Steel Capacity (Non-consolidated, Fiscal
Year)
Million T/year
JFE Established
30
29
2005 More than 2BillionUS Investment 2006-2007
Planned Investment to Solve Downstream Process(P
ickling,CGL)
17
(3) Differentiated Products, Differentiated
Marketing for Sustainable Business
Domestic Customers Structure
Global Marketing Segments
Service Center 18
Auto 27
Processors 18
Construction 13
Machinery 10
Can 4
Ship 10
Variation in Export
Differentiation in Export Sales
Alliances Vertical Integration41
Only1?No.1 Products 19
Long-term relation(AutoShipAppliance)40
18
(3-1) Differentiated Products High Quality
Products, Only1,No1
Growth of Only1,No1 -High Value Added High
Margin-
Commodity 15
Only1,No1 20
(Fiscal Year Base)
High Quality 65
High Quality, Only1,No1 85 in Total Sales
19
(3-2) Sustainable Global Marketing
Vertical Integration
China Bohai NKK Drill Pipe Fujian Sino-Japan
Metal Hainan Haiwoo Tinplate Guangzhou JFE Sheet
Korea Dongkuk Steel Hyundai HYSCO Dongbu
Steel INI Steel SeAH Steel
Canada Dofasco/DJG, STELCO
Germany TKS Georgsmarienhuette
USA CSI AK Steel
JFE
Greece Corinth pipeworks
Taiwan Ton-yi(Tinplate)
Colombia Holasa (Tinplate)
Thailand TCR(CR),TCS(EG) TTP(Tinplate)
Indonesia Sermani Steel (GI)
MalaysiaVietnam Perstima (Tinplate)
800Mil Overseas Investment 650Mil Return
from Investment in 2004(DividendRaw Material
Sales Consolidated Performance)
20
Ordinary Profit ROS (Fiscal Year Base)
(4) Earnings Improvement
Total Share Value
\107.2/US
Million US
Million US
JFE Established
JFE Established
21
3.JFE STEELS Challenge to
Sustainability by Overcoming the Core
Problem in Steel Industry
21
22
3 Key Strategies to be Further
Pursued Evolved

• 1) Successful Consolidation and Integration
• 2) Product Differentiation Taking Advantage
• of the High-end Steel Market
• 3) Marketing Differentiation
• by Long-term, Sustainable Viable
  Business

23
(1) Demand of High-end Steel is Growing and
Stable in China (1Q/04 vs. 1Q/05)
? Strong Demand Growth of High-end Products
(EG,TMP,Si) ? Stable Import of
High-end Products (EG,TMP,Si)
?Ten- fold Export Increase in
Commodity Products ( Semi,HR,CR,GI)
24
lt Whats High Quality Product?gt
(2) Product Differentiation by
High Quality Product
Virgin Metal from BF and Converter
BF
Combination of Advanced Technology
Patent
RH
Converter
CC
Sustainable Price and Margin
Rolling Finishing
Long-term Business Relationship
25
(3) Spot Market Price is Fluctuating
JFE Keeps Stable Pricing
Index Chinese Spot Market Price
26
3 Key Concepts
with the Customers, Alliances Partners

• 1) Long-Term Relationship
• 2) Win - Win
• 3) Trust Based Customer Relationship

Sustainable Co-prosperity with Customers
27
JFE Starts New 3-year Business Plan
Growth Strategies and Investment (Domestic,Overse
as, Technologies)
New Business Plan to Achieve New Goals
Strengthening the Balance Sheet
Sufficient Return to Stakeholders
28
Thank You for Your Kind Attention!