JFE Holdings, Inc.

Competition is intensifying both domestically and internationally due to the shrinking domestic market from declining birthrate and aging population, increased exports from China amid falling domestic demand there, and expanding steel production capacity in emerging economies. Tariff increases and anti-dumping measures in major overseas countries may constrain export transactions and affect sales volume and prices. In response, the Company is slimming down crude steel production capacity from 26 million tons to approximately 21 million tons by FY2027 (ending March 2027), introducing an innovative electric arc furnace by FY2028 (ending March 2028), and expanding the sales ratio of products with high technological superiority.

Prices of raw materials such as iron ore and coking coal have risen due to structural changes in global supply and demand, natural disasters and accidents in Australia and Brazil, and international conflicts, while energy prices such as electricity and natural gas are also trending upward. If these cost increases cannot be passed on to steel product prices, business performance may be affected. In response, the Company is working to reduce and stabilize costs through development of technologies to use and increase the ratio of low-cost raw materials, diversification of procurement sources, and planned refresh of in-house power plants at steelworks.

For the Company's group, which has steelmaking processes emitting large amounts of GHG, insufficient response to carbon neutrality or failure to achieve development of innovative technologies could lead to loss of cost competitiveness, reduced customer transactions, and difficulty in fund procurement. Introducing carbon neutral processes requires substantial technology development and capital investment costs, and there is a risk that if government support equivalent to other countries cannot be obtained or industrial electricity prices rise further, the cost competitiveness of Japanese steelmakers could decline. In response, the Company has set targets of reducing GHG emissions by 30% or more from FY2013 (ending March 2013) levels by FY2030 (ending March 2030) and achieving carbon neutrality by 2050, and is promoting hydrogen reduction technology, introduction of innovative electric arc furnaces, and expanded supply of GX Steel "JGreeX®".

In large-scale capital investments such as coke oven renewal, enhancement of electromagnetic steel sheet production lines, and introduction of innovative electric arc furnaces, if operational delays or changes in steel demand occur, the expected cost reduction and sales expansion effects may not be achieved as planned, potentially affecting business performance. In overseas business investments as well, there is a risk that changes in political and economic conditions or changes in the circumstances of joint venture partners could make it difficult to achieve expected returns or recover investments. In response, the Company regularly confirms progress on major projects and closely monitors global economic conditions and demand trends to appropriately review investment timing and scale.

Among the large-scale manufacturing equipment such as blast furnaces, coke ovens, converters, and rolling mills, some have reached renewal timing after several decades of operation, and if equipment or system troubles occur, production volume decreases or increased repair costs may affect business performance. In response, the Company is proceeding with planned renewal investments for critical equipment and horizontally deploying infrastructure investments utilizing DX, AI, and IoT technologies across all processes to strengthen the manufacturing capabilities of its steelworks.

Conflicts between countries and regions and the deepening fragmentation of markets are increasing the likelihood of supply chain disruptions for critical materials, economic external pressures, and unexpected introduction of regulatory systems. This could cause disruptions to production activities due to supply constraints on raw materials, significant increases in production costs, and difficulties in sales and business activities in specific countries or regions, potentially affecting business performance. In response, the Company is advancing information gathering, research and analysis regarding the politics, economics, and regulatory systems of each country and region, scrutinizing and diversifying its own value chain, and building mechanisms for risk identification and mitigation.

If confidential information and personal information of customers and business partners, as well as confidential information of the Company's group, is leaked or tampered with due to external attacks, negligence, or theft, this could lead to loss of technological superiority, damages compensation, and loss of social credibility, potentially affecting business performance. In response, the Company is promoting improvement of information security management levels across the entire group through the JFE Group Information Security Committee and JFE-SIRT, and established JFE Cybersecurity & Solutions Co., Ltd. in April 2024 to advance security personnel acquisition and development and strengthen monitoring functions.

In the steel business, which requires substantial capital for maintenance and renewal of large-scale equipment, interest-bearing debt has remained at high levels due to continued capital investment exceeding depreciation expenses, and if financial market instability, rising interest rates, or credit rating downgrades occur, there is a possibility of constraints on fund procurement or increased procurement costs. In response, the Company utilizes the Debt/EBITDA ratio and D/E ratio as financial management indicators, and is working to maintain financial soundness through CCC improvement via inventory reduction, reduction of held shares, and review of capital investment priorities.

When the yen depreciates, business performance is affected through increased raw material costs in yen terms, while when the yen appreciates, it may lead to decreased domestic steel demand due to reduced export competitiveness of demand industries such as automobiles, as well as reduced competitiveness of the Company's products in overseas markets. The portion of foreign currency denominated transactions not offset between receipts and payments is the source of exchange rate fluctuation risk. In response, the Company appropriately implements hedging transactions such as forward exchange contracts, and reflects yen depreciation in product sales prices while promoting establishment of a global supply system through insider-type overseas business expansion during yen appreciation.

If the Company's group and companies constituting its supply chain fail to sufficiently secure and develop human resources amid the decline in Japan's working-age population, stable production systems and competitiveness could be impaired, potentially affecting business performance. Additionally, if appropriate labor management is not conducted, there is a risk of leading to loss of personnel and significant loss of credibility. In response, the Company positions DEI as a management priority, expanding recruitment sources and utilizing diverse human resources, while promoting labor-saving and efficiency improvements through utilization of IT technologies such as generative AI and robotics technology.