1

Challenges and JFE Steel

12th Annual Platts Steel Markets Asia Conference

November 18, 2016

K. Mike FujisawaPrincipal, Corporate Planning

Excess Capacity

2

3

Global Steel Production

0

200

400

600

800

1000

1200

1400

1600

1800

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

World

China

former USSR

Other developing

Developed

Golden era Stagnation China driven boom

Mt China post

peak?

Source: worldsteel

0

200

400

600

800

1,000

1,200

1,400

1,600

2007 08 09 10 11 12 13 14 15 16 17

Million tons

1,534 1,544 1,499 1,501 1,510

Others

NAFTA

EU28

Other

Asia

ASEAN5

India

China

4

Global Steel Use

Source: worldsteel

5

Global Excess Capacity

Source: OECD

6

Chinese Government PolicyIn February 2016, China’s State Council announced its plans:� Reduce steel production capacity by 100 to 150 million tons

from 2016 to 2020

� No licensing for new steel projects

� Enforcing tougher regulations on environment, energy use, quality, safety, and technology for closure of outdated plants

� Dismantling the eliminated iron-making and steel-making capacities

� Guiding steel companies to take voluntary actions to reduce capacities by consolidation and transfer of production

� Steel producers to provide workers with training for new jobs and compensation for early retirement.

� Set up a special fund for structural adjustment of industrial companies

� Since the first oil crisis in 1973, slower economic growth led to lower steel demand.

� The steel industries in the US, the EU and Japan implemented restructuring measures to improve the utilization ratio by reducing crude steel-making capacity.

US EU Japan

0

40

80

120

160

1982年 1988年

(M tons)

Crude Steel Capacity

Crude Steel Production

Excess capacity

20%

0

50

100

150

200

250

1980年 1987年

(M tons)

24%

0

50

100

150

200

1977年 1990年

(M tons)

19%

7

Restructurings in the US, the EU and Japan

Sources: Japan Iron and Steel Federation, World Steel Dynamics & American Iron & Steel Institute

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

1974 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91

欧州欧州欧州欧州

米国米国米国米国

日本日本日本日本

日本日本日本日本 日本日本日本日本

※円高に伴う

構造調整

主要

鉄鋼

メー

カー

売上

高主

要鉄

鋼メ

ーカ

ー売

上高

主要

鉄鋼

メー

カー

売上

高主

要鉄

鋼メ

ーカ

ー売

上高

利益

率利

益率

利益

率利

益率

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

1974 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91

欧州欧州欧州欧州

米国米国米国米国

日本日本日本日本

主要

鉄鋼

メー

カー

売上

高主

要鉄

鋼メ

ーカ

ー売

上高

主要

鉄鋼

メー

カー

売上

高主

要鉄

鋼メ

ーカ

ー売

上高

利益

率利

益率

利益

率利

益率

米国米国米国米国

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

1974 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91

欧州欧州欧州欧州

8

Pro

fit /

Sal

es

of th

e m

ajor

ste

el c

ompa

nies

Japan

Japan

EU

EU

US

US

JapanJapanStructural adjustments caused by a higher yen

Restructurings and Financial Results

Sources: Japan Iron and Steel Federation, World Steel Dynamics & American Iron & Steel Institute

Japanese Economy

9

Economy

Source： Consensus forecast

�Public investment associated with the Tokyo 2020 Olympics and replacement of outdated infrastructure is expected to support demand.

� Expected recovery of global economy is forecast to lead to more export and capital investment.

10

(fiscal year) 2013 2014 2015 2016(F) 2017(F)

GDPGDPGDPGDP 2.02.02.02.0 ▲ 0.9▲ 0.9▲ 0.9▲ 0.9 0.80.80.80.8 0.70.70.70.7 0.90.90.90.9

Personal Consumption 2.3 -2.9 -0.2 0.6 0.8

Residential Investment 8.8 -11.7 2.4 5.4 -0.7

Capital Investment 3.0 0.1 2.1 0.5 1.5

Public Investment 10.3 -2.6 -2.7 2.8 3.9

Exports 4.4 7.9 0.4 -0.5 2.0

Imports 6.7 3.4 0.0 0.1 2.4

Real GDP growth rate (%) Real GDP growth rate (%) Real GDP growth rate (%) Real GDP growth rate (%)

Corporate Earnings

UnemploymentCorporate Earnings 100 Million Yen %

-5,000

0

5,000

10,000

15,000

20,000

25,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

All industries Steel

3

3.5

4

4.5

5

5.5

11

20

25

30

35

40

45

50

55

60

65

70

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

� Manufacturing accounts for about 60% of steel consumption.� The auto sector makes up about 30% of total steel consumption.� Construction is modestly increasing because of public works projects

and preparation for the Tokyo 2020 Olympics.

Steel Consumption

Source： The Japan Iron and Steel Federation

%Million tons

Manufacturing

Automobile

12

31 31 31 31 32 32 32 32 31 31 31 31 29 29 29 29 29 29 29 29 30 30 30 30 29 29 29 29 30 30 30 30

28 28 28 28 27 27 27 27

20 20 20 20 20 20 20 20 20 20 20 20 2121212123 23 23 23 23 23 23 23 22 22 22 22 22 22 22 22 22 22 22 22

39 39 39 39

42 42 42 42

40 40 40 40 42 42 42 42

44 44 44 44

47 47 47 47 48 48 48 48

50 50 50 50 51 51 51 51

43 43 43 43

37 37 37 37

41 41 41 41 41 41 41 41

43 43 43 43 41 41 41 41 42 42 42 42

41 41 41 41 40 40 40 40 40 40 40 40

0

10

20

30

40

50

60

70

80

90

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

manufacturingconstruction

-100

100

300

500

700

900

1,100

1,300

1,500

1,700

1,900

93 93 93 93 95 95 95 95 97 97 97 97 99 99 99 99 01010101 03030303 05050505 07070707 09090909 11111111 13131313 15151515

Autos

Source： The Japan Iron and Steel Federation13

10,000 units

Overseas Production

Domestic Production

Export

Domestic Sales

� The ultra-high yen after the financial crisis led to decreased exports, expanded overseas production and lowered domestic production.

� Even after adjustment of the ultra high yen, production centers are not returning to Japan.

10

12

14

16

18

20

22

24

26

28

88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

0

50

100

150

200

88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Trillion yen ($10 billion)

Source： Research Institute of Construction and Economy

Construction

10,000 units

Forecast to increase moderately in 2016 due to low interest rates

Forecast to increase due to Olympic and replacement demand

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Construction Investment (Public Investment)

Housing Starts

Summary

Japan• Demand generated by the government’s infrastructure

improvement plans and the Tokyo 2020 Olympics

• After 2020, effects of decreasing population are likely, but public investment and capital investment are expected to continue as outdated infrastructures and facilities are replaced

Asia• Overcapacity particularly in East Asia exerting pressure on steel

prices

• Growing steel demand for automobiles, infrastructure projects, and increasing need for quality steel (energy saving and environmental protection)

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JFE Steel

16

SlabSlabSlabSlab

PipePipePipePipe

Bar andBar andBar andBar and

ShapesShapesShapesShapes SheetSheetSheetSheet

20.2Mt80%

2.0Mt8%

0.9Mt4%

2.2Mt9%

FY2015 JFE Steel’s shipment of 25.4Mt

(stand-alone)

JFE Steel� Crude Steel Production 29.8 million tons (FY2015)

JFE Steel 27.4 million tonsEAF subsidiaries 2.4 million tons

� JFE Steel’s main products are flat products, accounting for about 80% of the total.

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JFE Steel’s Strategies

� Improving our manufacturing capabilities

� Maintaining and improving our cost competitiveness and world-class technology

� Strengthening international businesses, and promoting the JFE brand

� Passing on technical skills to further develop our human resources

� Strengthening the Group structure … for sustainable growth of JFE Steel

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Greece・・・・Corinth Pipeworks

U.S.A.・・・・California Steel・・・・AK Steel・・・・Benoit

South Korea・・・・Dongkuk Steel・・・・Hyundai HYSCO・・・・Dongbu Steel

South Korea・・・・Dongkuk Steel・・・・Hyundai HYSCO・・・・Dongbu Steel

JFE SteelJFE Steel

Thailand・・・・JFE Steel Galvanizing Thailand・・・・Thai Cold Rolled Steel Sheet ・・・・Thai Coated Steel Sheet・・・・Sahaviriya SteeI Industries・・・・Thai Tinplate

Indonesia・・・・JFE Steel Galvanizing Indonesia・・・・Sermani Steel

Malaysia・・・・Perstima・・・・Mycron

Germany・・・・ThyssenKrupp・・・・Georgsmarienhuette

China・・・・Guangzhou JFE Sheet ・・・・Fujian Sino-Japan Metal・・・・Hainan Haiwoo Tinplate・・・・Bohai NKK Drill Pipe・・・・Pancheng Yihong Pipe・・・・Jiaxing JFE Precision Steel Pipe

Taiwan ・・・・Ton-yi

India・・・・JSW Steel

Pakistan・・・・International Steel

Japan NKK Tubes

JFE Steel’s Global Alliances

Colombia・・・・ Hojalata Y Laminados

Vietnam ・・・・Sun Steel, J-Spiral Steel Pipe・・・・Formosa Ha Tinh Steel

UAE・・・・Al Gharbia Pipe

Mexico・・・・Nucor JFE

19

India ：：：： JSW SteelSteelSteelSteel

� To capture growing demand for high-end steel in India

� To respond to the automakers’ strategies favoring local procurement

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• Based upon the Strategic Collaboration Agreement with JSW Steel, JFE Steel has 15% equity ownership in JSW Steel.

• JFE has provided technical assistance for JSW in the area of automotive steel sheet and non oriented electrical steel(NOES).

• Based upon the Strategic Collaboration Agreement with JSW Steel, JFE Steel has 15% equity ownership in JSW Steel.

• JFE has provided technical assistance for JSW in the area of automotive steel sheet and non oriented electrical steel (NOES).

DolviDolviDolviDolvi WorksWorksWorksWorks5 million tons5 million tons5 million tons5 million tons

Salem WorksSalem WorksSalem WorksSalem Works1 million tons1 million tons1 million tons1 million tons

VijayanagarVijayanagarVijayanagarVijayanagar WorksWorksWorksWorks12 million tons12 million tons12 million tons12 million tons

Head Office in Head Office in Head Office in Head Office in MumbaiMumbaiMumbaiMumbai

Pickling and Tandem Cold Rolling Line

2,300,000 t/y

Continuous Annealing Lines 950,000 t/y x 2

Continuous Galvanizing Line (GI/GA)

400,000 t/y

Annealing and Coating Line for NOES

200,000 t/y

JFE Steel : 50％Guangzhou Steel Sheet : 50％

Tandem Cold Rolling Mill 1.8Mt

Continuous Annealing Line 1.0Mt

Continuous Galvanizing Lines (2 lines) 0.8Mt

• No. 1 CGL started operation in 2006.

• ＰＬ－ＴＣＭ started operation in May, 2011.

• ＣＡＬ started operation in July, 2011.

• No. ２ ＣＧＬ started operation in March, 2012.

• GJSS started as a JV with Guangzhou Iron and Steel, and became a JV with Guangzhou Steel Sheet, a Bao Steel subsidiary in 2012.

• GJSS is serving the auto and electrical appliance sectors in Southern China.

China ：：：： Guangzhou JFE Steel Sheet

� To capture growing demand for high-end automotive steel sheets in China

� To respond to automakers’ strategies favoring local procurement

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●●●●：：：：Automakers Automakers Automakers Automakers

� JFE Steel Galvanizing (Thailand), Thailand’s first CGL for Automobiles

� To capture growing demand for high-end automotive steel in Thailand

� To respond to automakers’ strategies favoring local procurement

� Overview

• Ownership: JFE Steel 100%

• Product: Hot-dip galvanized steel sheet(mainly for autos)

• Capacity: 400,000 tons/year

• Start-up: April 2013

Hemaraj Eastern Seaboard Industrial EstateHemaraj Eastern Seaboard Industrial EstateHemaraj Eastern Seaboard Industrial EstateHemaraj Eastern Seaboard Industrial Estate

HondaHondaHondaHonda

ToyotaToyotaToyotaToyota①①①①

IsuzuIsuzuIsuzuIsuzu①①①①

MitsubishiMitsubishiMitsubishiMitsubishi

ToyotaToyotaToyotaToyota③③③③

NissanNissanNissanNissan

SuzukiSuzukiSuzukiSuzuki

FordFordFordFord

ToyotaToyotaToyotaToyota②②②②

IsuzuIsuzuIsuzuIsuzu②②②②

Ford,MazdaFord,MazdaFord,MazdaFord,MazdaGMGMGMGM

BangkokBangkokBangkokBangkok

All of the automakers in Thailand are All of the automakers in Thailand are All of the automakers in Thailand are All of the automakers in Thailand are

located within the Hemaraj district.located within the Hemaraj district.located within the Hemaraj district.located within the Hemaraj district.

Map Ta PhutMap Ta PhutMap Ta PhutMap Ta Phut

JFE Steel Galvanizing (Thailand) JFE Steel Galvanizing (Thailand) JFE Steel Galvanizing (Thailand) JFE Steel Galvanizing (Thailand)

22

� Overview

• Ownership: JFE Steel 100%

• Product: Hot-dip galvanized steel sheet (mainly for autos)

• Capacity: 400,000 tons/year

• Start-up : January 2016

� JFE Steel Galvanizing Indonesia, Indonesia’s first CGL for automobiles

� To stay ahead of automakers’ ongoing expansion in Indonesia

� To capture growing demand in Indonesia

JFE Steel Galvanizing Indonesia

23

� JFE Steel joined Formosa Ha Tinh Steel, Vietnam’s first integrated steelworks , in 2015

� To capture growing demand in Vietnam and the ASEAN

� Overview • Ownership:

Formosa Plastic Group 70% China Steel Corporation 25%JFE Steel 5%

• Products: Hot Rolled Coils, Bars, Wire Rod

• Crude Steel Capacity: 7 million tons/year

Vietnam

24

� JFE Steel established Al Gharbia Pipe in UAE with SENAAT, a holding company owned by the Emirate of Abu Dhabi, and Marubeni-Itochu Steel, a Japanese trading house, in 2015

� To capture the demand for high-quality steel pipes for pipelines to transport oil and gas in the UAE and other GCC countries

MENA

� Overview• Ownership:

SENAAT 51%JFE Steel 27%Marubeni-Itochu Steel 22%

• Products: Large-diameter Welded Steel Pipes

• Capacity: 240,000 tons/year

• Start-up: October 2018

25

26

IndonesiaJSGICGL

(2016)

IndiaJSW

CRM, CAL, CGL(2013)

Automotive Market

ChinaGJSS

CRM, CAL, CGL(2006)

ThailandJSGTCGL

(2013)

MexicoNucor JFE

CGL(2019)

� Grow with growing markets by producing locally high value added products

Thank you!

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