Message from the CEO (JFE GROUP REPORT 2023)

Message from the CEO (JFE GROUP REPORT 2023)

Koji Kakigi Representative Director, President and CEO JFE Holdings, Inc.

Koji Kakigi

Representative Director,
President and CEO
JFE Holdings, Inc.

JFE’s Biggest Transformation Ever, Targeting Global Success

Through the completion of structural reforms, we will pivot from quantity to quality and consistently secure high revenue. Simultaneously, we will concentrate the collective strengths of the Group to accelerate the development of decarbonization technologies.

Our Vision

The Seventh Medium-term Business Plan was formulated in 2020, a time when the global economy was crippled by the COVID-19 pandemic. In the core steel business, there was a period of uncertainty for the future as demand for steel plummeted, yet it was during this time that we thoroughly discussed and formulated this business plan. As it was unknown when the pandemic would end, we decided to extend the plan from three to four years, with consideration for our postpandemic future.. Since then, significant changes have arisen in society and the world economy, such as the surge in raw material and energy prices after Russia invaded Ukraine, and emerging economic security issues due to the U.S.–China decoupling. However, I am confident that the fundamental direction of this business plan is still on track.

JFE was established in 2002 through the merger of Nippon Kokan and Kawasaki Steel. At the time, as head of the human resources department in the steel business company, my feelings of anxiety and elation resonated with the basic stance of the current business plan and its slogan, “JFE’s biggest transformation ever, targeting global success.” In implementing this plan, our mission has been to be essential to society’s sustainable development and to create safe, comfortable lives for people everywhere. With this in mind, we continue to take on challenges aimed at transformation and achieving environmental and social sustainability in addition to economic sustainability. With regard to environmental and social sustainability, our top management priority is to address climate change. To this end, we have formulated the JFE Group Environmental Vision for 2050 with a focus on reducing CO2 emissions in the steel business, contributing to reduction of CO2 emissions across the society in technology development while viewing decarbonization as a path to business opportunities.

As for economic sustainability, although we achieved our medium-term targets in fiscal 2021, the first year of the business plan, conditions in the following year, including one-off effects such as inventory valuation differences and rapidly deteriorating economic conditions, prevented us from reaching our goals in fiscal 2022. I will elaborate on this later, but after completing structural reforms in our core steel business as of September 2023, we are firmly committed to advancing our crucial pivot from quantity to quality and surpassing our future targets.

Despite the rapidly changing business environment, JFE remains committed to achieving sustainable growth under its corporate vision of “contributing to society with the world’s most innovative technology.”

CO2 emissions reduction targets Consolidated business profits

Review of Fiscal 2022 and Future Outlook

Modest Profit Despite Challenging Conditions in Second Year of Plan

In fiscal 2022, the second year of the business plan, the economy continued to recover from the COVID-19 pandemic. However, the recovery was complicated by the prolonged war in Ukraine, economic stagnation in China, rising concerns about global inflation, yen depreciation, price inflation, and supply constraints. Against this backdrop, business profit in the steel business declined due to factors such as inventory valuation differences and fluctuations in foreign currency exchange rates. Nevertheless, we made steady progress in building a robust revenue structure that is not dependent on volume and market conditions, including by raising prices to pass on the higher costs of primary raw materials and other items, making efforts to increase the sales ratio of high-value-added products, restructuring operations, and renovating blast furnaces.

Regarding price hikes, we improved our spread* by 74 billion yen compared to fiscal 2021 by actively passing on the rising costs of metals, energy, freight, etc., despite the harsh business environment characterized by a slow recovery in domestic steel demand and a slump in overseas steel prices.


* Margin after deducting costs of primary raw materials and other items from selling prices

Outlook for Fiscal 2023 and Fiscal 2024

For fiscal 2023, despite weakness in the overseas steel market, particularly in Asia, we forecast business profit to increase 54.2 billion yen thanks to the completion of structural reforms, price hikes, and the absence of oneoff factors that reduced profits in the previous fiscal year. In the steel business, we expect to achieve our initial target of 10,000 yen in profit per ton of steel, excluding inventory valuation differences. Additionally, in the plan’s final year, fiscal 2024, we are targeting segment profit of at least 260 billion yen, higher than the current target of 230 billion yen. This will be possible by realizing the full benefits of restructuring, worth about 45 billion yen, as well as launching grain-oriented electrical steel sheet production lines and continuing to increase prices.

Notably, in September 2023 we successfully completed the final phase of our structural reforms to pivot from quantity to quality by suspending upstream processes at our Keihin district as planned. By reducing domestic crude steel production capacity by approximately four million tons annually (about 13% of the total), JFE Steel will cut fixed costs by 45 billion yen and accelerate adjustments to its product mix. Since the steel industry is capital intensive, there was a time when prioritizing volume was the right strategy, but going forward we will focus on increasing sales of high-value-added products for the global market. We will reduce our production of commodity products that are difficult to differentiate in terms of value, and we will significantly reduce production capacity through restructuring. At the same time, we will leverage our technological capabilities to increasingly sell high-value-added products that contribute to customer value and are highly profitable.

Specifically, JFE Steel is steadily increasing its sales ratio of high-value-added products, mainly high-tensile automotive steels, high-alloy seamless steel pipes, automotive wire rods, and high-grade shaped steel for export (shipbuilding). With additional contributions from expanded capacity for non-oriented electrical steel sheet, we are on track to achieve our medium-term target of 50% sales of high-value-added products. In terms of pricing, customers are recognizing that JFE offers value commensurate with prices. We have already exceeded our medium-term target for differences in the margins of commodity versus high-value-added products.

The supply–demand balance for electrical steel used in electric vehicle (EV) motors is likely to tighten as the movement toward vehicle electrification gains momentum worldwide. JFE Steel excels at producing high-grade electrical steel that enables EVs to travel longer distances. The company aims to expand production capacity for top-grade non-oriented electrical steel sheet threefold compared to the current level by expanding its production facilities for electrical steel at the West Japan Works (Kurashiki district) in April 2024 and 2026. The EV market offers promising growth, so JFE Steel is committed to satisfying the needs of automakers with its world-class technological capabilities (see page 35).

In the engineering business, we aim to achieve our medium-term target for segment profit of 35 billion yen by continuing to win more orders and reliably secure earnings by focusing on countermeasures to rising material and equipment costs for existing projects. In line with our goal to become a leader in this field, we merged our domestic water engineering business with Tsukishima Aqua Solution Co., Ltd. in October 2023. As a company that supports lifestyles and society, our engineering business will also continue to strengthen its competitiveness through M&A, business alliances, etc., targeting revenue of 1 trillion yen by fiscal 2030.

In the trading business, we have consistently strengthened our earnings base, both domestically and internationally, especially in the United States, where the business environment has been favorable. Our trading business achieved record profits in both fiscal 2021 and fiscal 2022. Although a slowdown in our high-performing U.S. business is likely in fiscal 2023, we are forecasting segment profit of 48 billion yen, exceeding our initial target of 40 billion yen, and in the business plan’s final year, fiscal 2024, our target is segment profit of 50 billion yen.

Progress with the Seventh Medium-term Business Plan

Striving Toward for Carbon Neutrality

In the previous fiscal year, we disclosed the roadmap for our steel business through 2050, and also announced the possibility of replacing the Kurashiki No. 1 blast furnace with a high-efficiency, large-scale electric arc furnace by around 2027–2030. Moreover, we have introduced converter furnaces in all districts for greater use of steel scrap, which will lead to a significant reduction in CO2 emissions. In addition, we will expand the capacity of electric arc furnaces in our Sendai Works. In the engineering business, our construction and operation of renewable energy plants and recycling facilities helped Japanese society reduce CO2 emissions by approximately 580,000 tons compared to fiscal 2021.

To further these initiatives, we decided to link nonfinancial indicators related to climate change to the performance-based compensation of directors.

In fiscal 2023, JFE Steel decided to introduce electric arc furnaces for stainless steel production at its Chiba facility. With assistance from the government, we are tackling a number of challenges simultaneously, including carbon recycling blast furnaces*1 and hydrogen steelmaking, *2 including the construction of prototype facilities for each technology at Chiba.

For the time being, given our progress in developing ultra-innovative technologies while hydrogen supply remains limited, we will focus on reducing CO2 emissions by electric arc furnaces and investing in energy conservation. To secure necessary iron resources, we are exploring participation in Emirates Steel Arkan’s reduced iron*3 plant project in the United Arab Emirates (UAE), which we hope will provide a low-cost and stable supply base for reduced iron in the future.

It will be a daunting challenge to convert blast furnaces to electric arc furnaces on a large scale in Japan, China, South Korea, India, and other countries in Asia. Moreover, there are uncertainties about supply conditions for renewable energy as well as steel scrap and reduced iron, which are essential for steel production in electric arc furnaces. In addition, electric arc furnaces may not end up being the best technology for producing carbon-free steel on the path to carbon neutrality. This is why it is extremely important to rapidly develop ultrainnovative technologies, such as carbon recycling blast furnaces and hydrogen steelmaking, which may ultimately prove to offer the greatest potential for contributing to carbon neutrality.

In the first half of fiscal 2023, JFE Steel began supplying JGreeX green steel, which is made with considerably reduced CO2 emissions. Tsuneishi Shipbuilding Co., Ltd. has already decided to use JGreeX to construct hydrogen-fueled ships, and eight Japanese shipping companies have also decided to adopt it for dry bulk carriers. With our customers having have accepted a premium of about 40% for the price of JGreeX, this is the world’s first model for sharing the cost of reduced-CO2 environmental value across entire supply chains. This business model will be crucial for our sustained growth as we seek to reduce CO2 emissions through massive investments. We are committed to creating markets where customers recognize the value of green steel as an essential means of realizing a carbon-neutral world.

  1. *1 Insert methane derived from CO2 emitted from the blast furnace back into the furnace as a reducing agent
  2. *2 Uses hydrogen instead of coal as a reducing agent
  3. *3 High-grade iron ore from which oxygen is removed using natural gas

Commercialization of Offshore Wind Power Business

Our engineering business, aiming to develop its offshore wind power business, has started to construct Japan’s first manufacturing plant for monopiles (base structures for wind turbines) in Kasaoka, targeting production from April 2024. Despite some initial setbacks, we have begun marketing large-diameter structural components (not monopiles) for the foundations of offshore wind turbines that can be produced at the Kasaoka plant. In the late 2020s, when offshore wind power construction will gain momentum, we forecast sales of around 40 billion yen as we tap demand mainly in Japan but also overseas.

As materials for the production of monopiles, we plan to produce high-quality, extra-heavy steel plate at the No. 7 continuous casting machine at our West Japan Works (Kurashiki district). These extra-heavy steel plates are even larger than conventional heavy steel plate. As wind turbines become larger to generate more electricity, our extra-heavy steel plates will help reduce production costs and improve labor efficiency by reducing the need for welding. There are only a few steelmakers in the world that can manufacture and deliver such large-size extraheavy steel plates in sufficient quantities, and JFE Steel is one of the largest in Asia. I believe JFE Steel will be able to leverage its competitive advantages in this regard.

In the trading business, we are utilizing the expertise accumulated in our steel, raw materials, and equipment businesses to build supply chains and offer optimal solutions to customers. Moreover, we are exploring an operation & maintenance (O&M) business for offshore wind power. We anticipate that collaboration among group companies in our steel and engineering businesses will enable us to leverage our cumulative group knowledge and expertise for the proposed O&M business (see page 59).

Advancing Our DX Strategy

The business environment surrounding JFE is changing at an unprecedented pace and scale. In order to keep pace with these changes nimbly and swiftly, we have been advancing digital transformation (DX) to enhance corporate value over the medium and long term.

In the steel business, we invested 115.0 billion yen in DX in the mid-term, and we are targeting an annual profit improvement of 30 billion yen through the introduction of cyber-physical systems (CPS) for all lines. By the end of fiscal 2022, about 45% of our planned investments had been approved, an indicator of the steady progress we are making. Looking ahead, we will continue to invest in DX initiatives, focusing on their potential to increase earnings. In the next business plan, we intend to further automate and remotely operate facilities through CPS installed on production lines. In our engineering business, we are steadily investing in DX initiatives, reinforcing digital platforms, and utilizing DX to design engineering, procurement, and construction (EPC) projects, which will help us steadily progress toward our goal of a 20% improvement in design efficiency by fiscal 2024 (see page 64).


* Obtains big data from sensors in physical space (equipment and products), analyzes it in cyberspace via various methodologies, and feeds the results back into physical space in real time

Land Reuse in the Keihin District

Since the suspension of upstream processes in September 2023, JFE has been working in earnest to reuse its 222 hectares of land in Ohgishima along the waterfront of Tokyo Bay in Kanagawa Prefecture. In response to an administrative policies on land use in the area announced by Kawasaki City in August 2023, we published our “OHGISHIMA 2050” vision, based on which we are working with government agencies to explore possible ways to reuse the land, such as for carbon-neutral energy generation in Lead area or other diverse uses (see page 39).

Progress to date includes specific projects in the Ohgimachi area and in Minami-watarida north area. Looking ahead to future development,we are considering taking gains on land sales or land leasing income, or the discussion use of public funds for land development. While leveraging the characteristics of each area, we will advance initiatives along three avenues, namely, land sales, land leasing, and business use, with the objective of maximizing corporate value.

Progress with Growth Strategies

Overseas Strategies and Solutions Business

In the steel business, JFE is targeting growth centered on quality instead of quantity through a strategic reallocation of corporate resources, with a special focus on overseas markets, especially in Asia, where demand for steel is expected to strengthen.

India, a country with prospects for rapid growth, is an extremely attractive market, including because of barriers to importing steel from China. As needs for electricity quickly expand, we are likely to see strong demand for grain-oriented electrical steel sheet used in transformers. JFE, which has long sought to localize its production and sale of grain-oriented electrical steel sheet in India, recently entered into an agreement with JSW Steel, a major steelmaker, to establish a 50:50 joint venture for the production and sale of steel sheet. By teaming up with this trusted partner with a deep understanding of local conditions, JFE Steel will combine this “insider advantage*” with advanced technological capabilities to meet growing demand in India. Once the joint venture is established, construction of a local steel plant will commence, aiming at full production from fiscal 2027. Thereafter, production capacity will be expanded as required to meet local demand for steel (see page 37).

In addition, executives from JFE and Nucor, the largest steelmaker in the United States, have been communicating closely about a new growth proposal that combines their mutual strengths. JFE already has a close relationship with Nucor through Nucor-JFE Steel Mexico (NJSM) in Mexico and in cooperation with U.S. steelmaker CSI.

In the solutions business, a promising new business model, revenue is expected to triple from fiscal 2020 to fiscal 2024, including expanding by more than 150% in fiscal 2022 and at least 200% (target) in fiscal 2023. In the longer term, we expect to commercialize promising products developed with advanced technologies centered on CPS and safety.

In the engineering business, we are developing overseas markets, mainly in Asia, a key region. In the environmental field, we aim to expand earnings by advancing into facility operations for public–private, power generation, electricity, and recycling projects, in addition to reinforcing the competitiveness of existing projects through our engineering bases in India, the Philippines, and elsewhere in Asia. In the field of core infrastructure, JFE is keen to increase orders for chemical plants by leveraging synergies with JFE Project One Co., which became a subsidiary via M&A. For bridges and other steel structures, we expect to win projects not only in Asia but also in fast-growing Africa.

In the trading business, fiscal 2022 saw us expand various plants and processing facilities, such as press machines, at our processing bases in Japan, China, and Canada, aiming to meet envisioned growth in demand for electrical steel. Our trading business is building out its global processing and distribution structure with the intention of becoming a world leader in this field. In the building materials field, we acquired a U.S. manufacturer and distributor of steel sheet building materials to secure related demand for steel sheet in the expanding North American market. We will continue to pursue such growth strategies and strengthen our supply chain through Group collaboration in order to increase JFE’s market presence and earnings.


* “Insider advantage” means to invest in leading, locally trusted partners in overseas markets, and process and sell locally produced steel in local markets

Human Resources Management

We have formulated the JFE Group’s Basic Policy on Human Resource Management and the JFE Group Health Declaration to guide our efforts in drawing out the best in employees by investing in our human resources.

Amid a rapidly changing business environment, we are combining various value systems and ways of thinking to develop new ideas and methods for personnel management that can be translated into increased corporate value. JFE values diversity and inclusion and strives to create work environments where people of diverse backgrounds, including gender, nationality, value systems, and lifestyles, can maximize their abilities. To further empower women, based on input from the Board of Directors we decided to set ambitious key performance indicators (KPIs) for women in managerial positions and female hiring ratios in fiscal 2022. Each operating company sets and enacts policies for diversity and inclusion based on discussions with management. We are implementing a variety of measures to recruit more female candidates for managerial positions, retain personnel by expanding internal and external networking opportunities and providing role models, and place and develop female employees through individual training initiatives.

In addition, to enable our diverse employees to realize their capabilities and potential, we are working to create internal environments in which employees can feel a sense of job satisfaction. JFE Holdings and its operating companies each conduct an annual engagement survey to gauge employee awareness, identify issues related to job satisfaction, and consider any necessary remedial measures.

Maintaining safe work environments and preventing occupational injuries are essential to ensuring that our employees can work with confidence. Starting with the basic principle of putting safety first, JFE sets safetyrelated KPIs and implements measures to ensure safety. The current business plan includes priority investments in safety measures worth around 10 billion yen per year Groupwide, striving to adopt the latest technologies and continue with ongoing safety activities to prevent equipment and other work-related injuries. Also, to minimize occupational injuries in fiscal 2022, JFE introduced a safety-related metric linked to the performance-based compensation of directors.

Capital Market’s Evaluation of JFE

JFE Holdings’ share price is one of the Company’s key management indicators, based on which the current business plan targets a return on equity (ROE) of at least 10% above the cost of shareholders’ equity. While the Company believes this target is achievable by fiscal 2024, so far capital markets have a different view of our ability to achieve this target.

It seems the market is not convinced that JFE can reliably maintain its ROE above the cost of shareholders’ equity going forward, due to factors such as earnings volatility in the steel business, increasing uncertainty related to Japan’s declining birthrate, and the global need to decarbonize.

It is imperative that we clearly convey to the public that we have transformed JFE’s structure to generate stable, high-level earnings by shifting from quantity to quality under our current business plan. Moreover, we will advance our overseas strategy as a source of growth and formulate business models that enable us to grow and generate profits overseas, particularly the expanding markets of India and North America. However, since it will take time to develop ultra-innovative technologies for decarbonization, we will strive to disclose information in a detailed and easy-to-understand manner, including our progress in developing such technologies and their expected impact on society.

There is no doubt that steel, which is produced about 1.9 billion tons a year worldwide, is an essential material for the development of the global economy and human society. As a company that provides products and services centered on steel, we are keenly aware of the need to quickly develop technologies necessary for decarbonization in an economically sustainable manner. JFE, aiming to turn this challenge into an opportunity, will mobilize its collective capabilities to rapidly develop decarbonization technologies.

In Conclusion

In 2022, JFE Holdings celebrated the 20th anniversary of the merger of Nippon Kokan and Kawasaki Steel. With this milestone in mind, at the end of 2022 we launched an ad campaign in Japan with the tagline “Sus-tetsunable,”* which embodies our ambition to be an irreplaceable presence on the path to a sustainable world. The initiative is aimed at not only raising awareness of JFE among as many people as possible but also attracting more talented people to work with us and help JFE grow. Through this campaign, we hope to convey to employees who will carry us into the future, as well as to students who may join us in the future, that we offer them almost limitless opportunities to contribute to the world through our work with steel. Young employees who have seen the commercials have responded positively, saying that it reinforces their understanding of how important their work is from a societal perspective. Going forward, with the goal of being an irreplaceable presence on the path to a sustainable world, we are committed to working with our employees to enhance our corporate value and communicate our vision of where we are going and how we will get there. I thank you for your understanding and support as the JFE Group continues onward.


* A term unique to our Company, it combines steel and sustainability, both of which are essential to society


Koji Kakigi

Representative Director,
President and CEO