HOKUETSU METAL Co., Ltd.

The ordinary steel electric furnace industry is a market-condition-sensitive industry, and fluctuations in steel demand from public investment, private capital investment, housing construction, etc., as well as fluctuations in product market prices, significantly affect business performance. Because the structure is susceptible to economic fluctuations, there is a risk that sales and profits could deteriorate substantially during periods of weak demand. The company seeks to stabilize management through the supply of high-quality, high-value-added products, but it is difficult to completely avoid the impact of market deterioration.

The prices of main raw materials such as steel scrap, ferroalloys, and energy may fluctuate significantly, reflecting international economic conditions. If increases in raw material costs cannot be passed on to product prices, profitability will be squeezed, adversely affecting business performance and financial condition. The company strives to improve product prices and reduce costs, but there is a risk that this may become difficult depending on market conditions.

If the spread of a virus or other infectious disease disrupts society, the economy, or markets, business activities may be constrained. If significant impacts on stakeholders occur, this could lead to a slowdown in production and sales activities. The company strives to prevent infection through thorough safety and health measures, but the response may be limited depending on the scale and nature of the infectious disease.

Because the Group relies on electric furnaces as core equipment and consumes large amounts of electricity, it may face supply constraints that hinder operations during periods of tight power demand. In addition, electricity rates may fluctuate significantly due to trends in oil, liquefied natural gas, exchange rates, geopolitical risks, and other factors, creating a risk of rising manufacturing costs. The company is addressing this through advanced electric furnace energy efficiency and the use of auxiliary fuels, but risks of fluctuation due to external factors remain.

The Group's business activities are subject to various regulations and laws, and changes to or tightening of legal regulations may constrain business activities. Strengthening of environmental and safety regulations could lead to increased capital expenditure and rising costs. The company is working to formulate a Group code of conduct and strengthen legal compliance, but responding to changes in the regulatory environment could affect business performance and financial condition.

If a large-scale earthquake, typhoon, or other natural disaster, or a serious equipment accident occurs, plant operations could be suspended, potentially having a significant impact on business performance and financial condition. Steelmaking equipment often operates in high-temperature, high-pressure environments, and the impact of an accident could be substantial. The company implements disaster prevention measures and pre-inspection of equipment, but there are limits to responding to large-scale disasters.

Amid Japan's declining birthrate and shrinking labor force, if the Group fails to meet its personnel recruitment plans, it may become difficult to maintain production, technical, and management functions, potentially affecting business performance and financial condition. The steel industry has many positions requiring specialized skills, and securing and developing skilled personnel is essential to maintaining competitiveness. The company is working on respecting diversity, supporting self-development, investing in labor-saving measures, and implementing personnel recruitment initiatives, but there is a risk that the tight labor market will continue.

If risks that cannot currently be foreseen materialize, they may affect the Group's business performance and financial condition. Events that are difficult to address within the existing risk management framework may occur, such as geopolitical shifts, the emergence of new technologies, or changes in social structure. The company has adopted a policy of striving to avoid the occurrence of risks and to respond when they occur, but the specific response measures depend on the nature of the event.