Tohoku Steel Co.,Ltd.

Raw materials (including rare elements such as chromium and nickel) and energy costs (electricity and LPG), which account for the majority of manufacturing costs in the Specialty Steel Business, are highly susceptible to global conditions and exchange rate fluctuations, and the risk of manufacturing cost increases is rising due to the COVID-19 pandemic, the invasion of Ukraine, deteriorating Middle East conditions, and U.S. tariff policy, among other factors. In addition, the fixed cost burden from equipment depreciation and R&D expenses is high, making it difficult to recover fixed costs when sales decline, which has a material impact on business performance. In response, the Company is pursuing appropriate pass-through of costs to sales prices, strengthening sales of high-value-added products such as Electromagnetic Stainless Steel, and allocating human resources to sales activities through DX promotion.

Of the roughly 70% of net sales attributable to the automotive industry, the mainstay products are Heat-Resistant Steel (for Engine Valves), Electromagnetic Stainless Steel for fuel injection systems, and precision-machined products; however, as vehicle electrification progresses, sales of vehicles equipped with engines are expected to decline, and the resulting contraction of the market for these engine-related products has a material impact on business performance. In response, the Company is developing Electromagnetic Stainless Steel for BEV air conditioning applications, fuel system materials for fuel cell vehicles, and new applications for semiconductor manufacturing equipment. It has also launched a strategic product expansion working group to promote product portfolio reform and new business acquisition activities.

More than 35 years have passed since the head office plant (Murata Town, Miyagi Prefecture) relocated there in 1990, and aging of large-scale plant infrastructure and equipment is progressing. In the event of a breakdown, prolonged production shutdowns could lead to decreased net sales and increased repair costs, and if chemical leakage occurs from the chemical tanks in the pickling or organic solvent cleaning processes, chemical removal costs would be incurred, impacting business performance. In response, the Company is working to detect defects early through its own issue identification and repair planning, conducting planned repairs and renewals based on individual maintenance schedules, and promoting early trouble detection through IoT and digitalization.

Some quality inspection results are processed through manual entry from various analysis and inspection equipment into the core system, creating the possibility of fraudulent data submission due to input errors. Furthermore, it is difficult to completely prevent organized fraud, and if fraudulent data submission occurs, costs such as product returns, exchanges, and damage claims may arise; in the event of a serious accident caused by the leakage of such products into the market, this could also lead to a decline in creditworthiness, a decrease in transaction volume, and a decline in net sales. In response, the Company has established a double-check system by quality control personnel and conducts annual external audits of its quality management system by external certification bodies.

Although the Company has established a thorough quality inspection and assurance management system, it cannot completely eliminate the possibility that nonconforming products may be delivered to customers due to unforeseen circumstances, creating a risk of product liability claims. If nonconforming products are delivered, costs such as product returns, exchanges, and damage claims will arise, having a material impact on business performance. In response, the manufacturing division regularly holds quality review meetings to share information on customer needs and quality issues and to address such issues.