To Our Shareholders

During the first half of fiscal 1995, ended September 30, 1995, Japan's economic
environment remained severe.  Although private-sector capital investment showed 
signs of recovery and the abnormally high yen seemed to be on a corrective      
course, sluggish personal consumption persisted, and housing starts, previously 
a supporting element for the economy, weakened.                                 
    In this operating environment, Kobe Steel, Ltd., focused its resources on   
recovering from the damage sustained in the Great Hanshin Earthquake.  To       
facilitate reconstruction, we also worked to maximize orders and sales,         
rationalize operation and cut costs.                                            
    At our Kobe Works and Kakogawa Works, which sustained the most damage in the
earthquake, restoration of facilities progressed rapidly, with production       
capacity at both steel plants nearly recovering to pre-quake levels by July     
1995.  As a result, particularly in the Iron and Steel Sector, we minimized the 
opportunity loss resulting from lower production and sales, and we restrained   
the cost increases associated with reduced operating levels.  This rapid        
recovery allowed us to trim total earthquake losses from our previously reported
estimate of ¥109.6 billion to ¥102.0 billion.                                   
    The adjusted 1993-1995 Revised Midterm Action Plan is now in its final      
fiscal year.  Through it, we have achieved cost savings through personnel       
reductions, lower overall production costs, reduction of assets and increased   
operational competitiveness.  All our divisions have made great efforts toward  
these goals, with each one implementing essential elements of the plan.         
Consequently, Kobe Steel has met cost-reduction goals laid out in the plan ahead
of schedule.                                                                    
    As a result of these efforts, non-consolidated net sales increased 4.9%, to 
¥550.1 billion, compared with the same period of the previous year.  Operating  
income increased 87.7%, to ¥47.1 billion, compared with the first half of fiscal
1994.                                                                           
    While we continued to solidify our profitability, we sold some assets.  The 
proceeds will allow us to more effectively offset losses from the earthquake and
the cost of special retirement benefits arising from an employee transfer       
system.                                                                         
    As a results of last year's deficit, we are unable to pay an interim        
dividend under the regulations of the Commercial Code of Japan.  We sincerely   
regret this development.                                                        
                                                                                
                                                                                
Performance by Sector                                                           
                                                                                
Sales of the Iron and Steel Sector fell 2.0%, compared with the first half of   
the previous term, to ¥241.4 billion.  Domestic steel demand from manufacturers 
was stagnant due to the effects of the high yen, while demand from the          
construction industry for post-earthquake restoration work was weaker than      
expected.  Overall exports were depressed, as firm demand in Southeast Asia was 
offset by decreased demand elsewhere, particularly in China and the United      
States.                                                                         
    In conjunction with our early recovery from the effects of the earthquake,  
we have striven to maintain orders for steel products, steel castings and       
forgings, and titanium products.  Despite our efforts, domestic and export sales
volumes fell, compared with last year's corresponding fiscal term, as demand    
remained weak.                                                                  
    Sales of the Aluminum and Copper Sector grew 21.5%, compared with the       
previous term, to ¥138.7 billion.  Sales volumes of aluminum can stock for      
beverages increased as a result of the especially hot summer, as did sales      
volumes of aluminum sheet and copper tubes for air conditioners.  In addition,  
demand was strong for aluminum computer disk substrates, as well as for copper  
products for electronic applications such as terminals and semiconductors.      
    Sales of the Machinery Sector grew by 3.8%, compared with the first half of 
the previous term, to ¥170.0 billion.  Exports of construction machinery        
decreased, as production expanded at our overseas plants.  While this sector    
received orders for large-scale plant projects from overseas, orders for        
domestic plant projects declined.  Compared with the previous fiscal term,      
orders declined 1.1%, to ¥166.7 billion.                                        
                                                                                
Outlook for the Second Half                                                     
                                                                                
It is hoped that the government's economic stimulus package will prime the      
Japanese economy, but strong growth in the short term is not likely.            
Regardless, Kobe Steel will continue strengthening its corporate structure and  
bolstering profitability.  Further, we remain committed to reinforcing our      
management structure.  As we pursue these goals, we offer our thanks to our     
shareholders for their continued support.                                       


December 12, 1995

Sokichi Kametaka
President