1. Basis of Presentation of Financial Statements

Kobe Steel, Ltd. (the "Company"), a Japanese corporation, 
maintains its records and prepares its financial statements in 
Japanese yen in accordance with generally accepted accounting
principles in Japan.  The accompanying consolidated 
financial statements have been translated from the 
consolidated financial statements which are prepared for 
Japanese domestic purposes, in accordance with the provisions
of the Securities and Exchange Law of Japan and filed 
with the Ministry of Finance of Japan and stock exchanges in 
Japan.  Certain modifications, including presentation of the 
statements of stockholders' equity and cash flows, have been 
made in the accompanying consolidated financial statements 
to facilitate understanding by foreign readers.
  Certain reclassifications have been made in the accompanying
consolidated financial statements for the year ended 
March 31, 1995 to conform to the presentation for 1996.
  For convenience only, U.S. dollar amounts presented in the 
accompanying consolidated financial statements have been 
translated from Japanese yen at the rate of ¥106.35 to US$1, 
the rate prevailing on March 31, 1996.

2. Summary of Accounting Policies

(1) Consolidation
The consolidated financial statements include the accounts of 
the Company and its significant majority-owned subsidiaries 
(the "Group").  For the year ended March 31, 1996, the 
accounts of 103 (105 in 1995) subsidiaries have been included 
in the consolidated financial statements.  Intercompany 
transactions and accounts have been eliminated.  Foreign 
subsidiaries financial statements, prepared under accounting 
principles generally accepted in the respective countries, are 
used in the preparation of the consolidated financial 
statements.
  Investments in unconsolidated subsidiaries and 20 percent 
to 50 percent owned affiliates, except for insignificant 
companies, are accounted for by the equity method.  For the 
year ended March 31, 1996, 48 (44 in 1995) affiliates were 
accounted for by the equity method.
  The difference, if considered significant, between the cost 
of investments and the equity in their net assets at their dates 
of acquisition is amortized over five years (forty years for 
acquisitions made by certain foreign consolidated 
subsidiaries).
  When the Company's share of the net losses of an affiliate 
exceeds the adjusted cost of the investment, the Company 
discontinues applying the equity method and the investment 
is reduced to zero.  At March 31, 1996 and 1995, the Com-
pany's share of such accumulated losses which were not 
reflected in the carrying amount of investments were ¥148 
million ($1,392 thousand) and ¥607 million, respectively.
(2) Cash Equivalents
The Company considers time deposits (due within one year) 
to be cash equivalents.
(3) Allowance for Doubtful Accounts
The allowance for doubtful accounts is provided in amounts 
considered to be sufficient to cover possible losses on col-
lection.  With respect to the Company and consolidated 
domestic subsidiaries it is determined by adding the 
uncollectable amounts individually estimated for doubtful 
accounts to a maximum amount permitted for tax purposes, 
which is calculated collectively. The allowance for doubtful 
accounts of foreign consolidated subsidiaries is determined by 
estimates of management.
(4) Marketable Securities and Investments in Securities
Listed equity securities included in both marketable securities 
and investments in securities, except for certain equity 
securities of unconsolidated subsidiaries and affiliates, in 
which the Company's ownership equals or exceeds 25 
percent, are principally stated at the lower of moving average 
cost or market value.  Other securities, excluding investments 
accounted for by the equity method, are stated at moving 
average cost.  If significant impairment of value is deemed 
permanent, cost is appropriately reduced.
(5) Inventories
Inventories are valued at cost, as determined principally by 
the following methods:
        Two main works in the Iron and Steel Sector and the 
        three main plants in the Aluminum and Copper Sector
	............................. Last-in first-out method
        Finished goods and work in process in one plant in the 
        Iron and Steel Sector and the Machinery and 
        Information Sector......Specific identification method
       Others.................................. Average method
(6) Depreciation of Plant and Equipment
Depreciation of plant and equipment is principally provided 
using the straight-line method over estimated useful lives.
(7) Long-term Construction Contracts
Sales and the related costs of certain long-term (over one 
year) construction contracts of the Company are recognized 
by the percentage of completion method.
(8) Research and Development Expenses
Expenses of the Company in respect of the development of 
new products and research into and the application of new 
technologies (being in each case expenses which are expected 
to contribute to future sales), are deferred and amortized over 
five years.
(9) Income and Enterprise Taxes
Income and enterprise taxes are payable by the Company and 
its domestic consolidated subsidiaries on the basis of taxable 
income.  Income and enterprise taxes, which in the aggregate 
indicate a statutory tax rate of approximately 52 percent, are 
based on taxable income.  Enterprise tax is included in selling,
general and administrative expenses.
  Deferred taxes relating to timing differences between 
financial accounting and tax reporting are recognized by 
certain foreign consolidated subsidiaries and in respect of the 
elimination of intercompany profits and other tax effects 
resulting from consolidation.  Long-term accrued income and 
enterprise taxes are also recognized in respect of the 
amortization of deferred income as described in Note 2 (13) 
below.  Such income is recognized for the purposes of taxa-
tion, and the provision for long-term accrued income and 
enterprise taxes is reversed, at the time of redemption of the 
related bonds.
(10) Reserve for Loss from Natural Disaster
In order to provide for the cost of repairs and other expenses 
related to fixed assets that were damaged in the Great 
Hanshin Earthquake disaster of January 17, 1995, the reserve 
for loss from natural disaster is estimated in the amount 
considered necessary as of the end of the year.
(11) Employees' Retirement Benefits
Substantially all employees of the Company and its domestic 
consolidated subsidiaries are entitled to a lump-sum payment 
at the time of retirement.  The amount is, in general, 
determined on the basis of length of service, base salary at the 
date of retirement and cause of retirement.  In the case of 
involuntary retirement, the employee is entitled to a greater 
payment than in the case of voluntary retirement.
  Employees of the Company whose employment is 
terminated after the age of 50 may elect to take part of their 
retirement benefits in the form of pension payments.  The 
funds required to make pension payments are entrusted to an 
outside trustee.  The liability in respect of lump-sum 
retirement benefits is stated at the present value of the 
unfunded portion of the expected future retirement benefits 
attributable to eligible employees' years of service as at the 
balance sheet date. Prior service costs in respect of the 
pension plan, less that portion of the provision in respect of 
lump-sum retirement benefits no longer required by reason of 
the introduction of the pension scheme, are amortized on the 
declining balance method at the rate of 15 percent per annum.
  The Company's domestic consolidated subsidiaries provide 
for retirement benefits principally at the rate of 40 percent of 

the expected future retirement benefits attributable to eligible 
employees' years of service as at the balance sheet date.  
Certain foreign consolidated subsidiaries also have retirement 
benefit plans covering eligible employees.
(12) Allowance for Special Repairs
Blast furnaces and hot blast stoves, including related 
machinery and equipment, periodically require substantial 
component replacement and repair.  The estimated future 
costs of such work are provided for and charged to income on 
a straight-line basis over the period to the date of the 
anticipated replacement and repair.  The difference between 
such estimated costs and actual costs is charged or credited to 
income at the time the repairs take place.
(13) Translation of Foreign Currencies
Current receivables and payables denominated in foreign 
currencies are translated at historical rates in accordance with 
Statement No. 46 of the Audit Committee of the Japanese 
Institute of Certified Public Accountants.
  All other assets and liabilities denominated in foreign 
currencies are translated at historical rates except those, 
including bonds denominated in foreign currencies, hedged by 
forward exchange contracts.  Such bonds are translated into 
Japanese yen at the contracted forward exchange rates and the 
difference between the amount at the contracted forward 
exchange rate and the amount at the spot rate at the date of 
issue of the bonds is deferred and shown as deferred income 
in the consolidated balance sheets.  The deferred income is 
amortized over the life of the forward exchange contracts.  For 
the years ended March 31, 1996 and 1995, amortization of 
such deferred income amounting to ¥729 million ($6,855 
thousand) and ¥909 million, respectively, was credited to 
"Other income (expenses): Other, net" in the consolidated 
statements of operations.
  Financial statements of consolidated foreign subsidiaries are 
translated into Japanese yen at current rates for all accounts, 
except for common stock, additional paid-in capital and 
retained earnings at the beginning of the year which are 
translated at historical rates.  The resulting translation 
adjustments are separately presented as "foreign currency 
translation adjustments" in the consolidated financial 
statements.
(14) Leases
Finance leases which do not transfer ownership and do not 
have bargain purchase provisions are accounted for in the 
same manner as operating leases by the Company and 
consolidated domestic subsidiaries.  Finance leases of certain 
foreign consolidated subsidiaries are capitalized in accordance 
with generally accepted accounting principles in the respective 
countries.
(15)Notes receivable and payable maturing on 
March 30 and 31, 1996
In accordance with generally accepted accounting principles in 
Japan, the Company and domestic consolidated subsidiaries 
recorded the settlement of notes receivable and payable 
maturing on March 30 and 31, 1996, banking holidays in 
Japan, on the next following banking day.
  The amounts of such notes were included in the notes 
receivable and payable balances at March 31, 1996 as follows:  

                          Millions of yen     Thousands of 
                                              U.S. dollars
------------------------ ----------------- ------------------
Notes receivable........         ¥14,396         $135,364
Notes payable...........           36,375          342,031
                         ----------------- ------------------

(16) Net Income (loss) per 1,000 Shares
Computations of net income (loss) per 1,000 shares are based 
on the weighted average number of shares outstanding during 
the year.

3. Accounting Change

During the year ended March 31, 1995 a consolidated 
subsidiary changed its method of accounting for deferred 
factory start up costs from amortizing them over five years to 
charging them directly to income. As a result of the successful 
completion of the first phase of the subsidiary's project to 
produce 64 megadram memory chips, this change was made 
to reflect its advancement to the production stage. The effect of 
this change was to increase the loss before income taxes by 
¥4,277 million ($47,868 thousand) and is shown in the 
consolidated statement of operations as "Write off of deffered 
factory start up costs".

4. Differences between Japanese Accounting Principles and 
   International Accounting standards

The accompanying consolidated financial statements of the 
Company are prepared in conformity with accounting 
principles generally accepted in Japan, which differ from 
International Accounting Standards ("IAS") with respect to 
the Company and its consolidated subsidiaries as described 
below.  For the purpose of this comparison IAS extant at 
January 1, 1996 are used even though certain IAS were not 
effective with respect to the years ended March 31, 1996 and 
1995.
(1) Consolidation and the Equity Method of Accounting
Generally accepted accounting principles in Japan require that 
(i) all subsidiaries be consolidated and (ii) all affiliated 
companies be accounted for by the equity method with the 
exception that investments that are immaterial may be 
excluded from this treatment.  These Japanese accounting 
principles are in substantial agreement with IAS 27 and IAS 
28 which require, except on certain specific grounds, the 
consolidation of all subsidiaries and the application of the 
equity method to all affiliated companies.
(2) Tax Effect Accounting
Income taxes are provided, in principle, based on taxable 
income and on the basis of amounts currently payable for 
each period.  The Company does not recognize the tax effect 
of timing differences, except as indicated in Note 2(9).  
Therefore, the Company's policy is not in accordance with 
IAS 12 which requires that the tax expense for a period be 
determined on the basis of tax effect accounting.
  It has not been practicable to quantify the effect on net 
income of this difference in accounting policy.
(3) Leases
IAS 17 requires that finance leases be reflected in the leasee's 
accounts by recording an asset and liability equal to the lower 
of the net fair value of the leased property and the present 
value of the minimum lease payments.  The asset should be 
depreciated and rentals apportioned between finance charges 
and reduction of the outstanding liability.  Generally accepted 
accounting principles require that finance leases, as defined 
therein, be capitalized with the exception that finance leases 
that do not transfer ownership and do not have bargain 
purchase provisions may be accounted for in the same 
manner as operating leases.  For the years ended March 31, 
1996 and 1995, the Company had no finance leases that were 
required to be capitalized.  
  It has not been practicable to quantify the effect on net 
income of this difference in accounting policy.
(4) Translation of Foreign Currencies
Short-term and long-term receivables and payables 
denominated in foreign currencies, except for long-term debt 
covered by forward exchange contracts, are translated at the 
exchange rate existing at the time of the transaction.  This is 
not in accordance with IAS 21 which requires foreign currency 
monetary items to be translated at the rate of exchange in 
effect at each balance sheet date, except when covered by 
forward exchange contracts.
  The effect of applying IAS 21 to the financial statements 
would be to decrease income before income taxes for the year 
ended March 31, 1996 by ¥500 million ($14,701 thousand) 
and increase the loss before income taxes for year ended 
March 31, 1995 by ¥1,400 million.
  Financial statements of foreign subsidiaries are translated 
into Japanese yen in the manner described in Note 2 (13).  
This translation policy is not in accordance with IAS 21 which 
requires income and expenses be translated at exchange rates 
at the dates of the transactions.
(5) Inventories
As noted in Note 2 (5), the Company values inventories at cost 
in accordance with generally accepted accounting principles in 
Japan.  IAS 2 requires that inventories be measured at the 
lower of cost and net realizable value.  Furthermore, for 
determining the cost of certain inventories the Company 
applies the last-in, first-out (LIFO) method which is an allowed 
alternative treatment under IAS 2 for which additional 
disclosure is required.
  It has not been practicable to quantify the effect on net 
income of this difference in accounting policy and determine 
the additional disclosure required under IAS 2 when the LIFO 
method is applied.
(6) Research and Development Expenses
Expenses in respect of the development of new products 
and in respect of research into and the application of new 
technologies (in each case expenses which are expected to 
contribute to future sales) are deferred and amortized over a 
five year period.  This is not in accordance with IAS 9, which 
requires research and development costs to be charged as an 
expense of the period in which they are incurred except to the 
extent that development costs are deferred on certain specified 
grounds.
  The effect of applying IAS 9 to the financial statements 
would be to increase the income before income taxes for the 
year ended March 31, 1996 by approximately ¥6,500 million 
($61,119 thousand) and decrease the loss before income taxes 
for the year ended March 31, 1995  by approximately ¥5,500 
million.
(7) Market Value Information on Marketable Securities
Market value information relating to marketable securities 
is required to be disclosed on the non-consolidated basis in the 
Securities Report filed with the Ministry of Finance under the 
Securities and Exchange Law of Japan.  Such market value 
information does not constitute any part of the financial 
statements and related notes thereto and, accordingly, is not 
subject to audit by the independent auditors.  IAS 25 requires 
the disclosure of the market values of marketable securities, 
other than long-term investments, if different from the 
carrying amount in the financial statements.

The following shows the unaudited market values and 
unrealized gains and losses on securities held by the Company 
at March 31, 1996 and 1995: 



These amounts do not include unlisted stocks.  The 
Company does not have any outstanding options or futures 
transactions.

5. Short-Term Borrowings and Long-Term Debt



The detachable warrants issued with the 4.5% bonds are exercisable through June 12, 1996
at a price of ¥531($4.99) per share, subject to adjustments in certain circumstances.



6. Contingent Liabilities



7. Stockholders' Equity

Under the Commercial Code of Japan, the entire amount of 
the issue price of shares is required to be accounted for as 
stated capital, although a company may, by resolution of its 
board of directors, account for an amount not exceeding one-
half of the issue price of the new shares as additional paid-in 
capital.
  The Commercial Code of Japan provides that an amount 
equal to at least 10 percent of any disbursements as an 
appropriation of retained earnings in each period shall be 
appropriated as legal reserve until the reserve equals 25 
percent of the amount of common stock.  This reserve is not 
available for dividends, but may be used to reduce a deficit by 
a resolution of the stockholders or may be capitalized by a 
resolution of the board of directors.

8. Selling, General and Administrative Expenses



9. Disaster Casualty Loss



10. Segment Information

(1) Industry Segment
The Group' s operations are divided into five principal 
business segments: Iron and Steel, Aluminum and Copper, 
Machinery, Electronics and Information, and Other 
Businesses. Business segment information was as follows;





Corporate assets of ¥280,030 million ($2,633,098 thousand) 
are comprised principally of bank and time deposits and 
assets of administration departments of the Company.

(2)Overseas sales
Overseas sales totals and totals as percentages of consolidated 
net sales were ¥349,248 million ($3,283,949 thousand) and 
¥258,218  million and 23.6 percent and 19.3 percent for the 
years ended March 31, 1996 and 1995, respectively.
  Overseas sales consisted of export sales of the Company and 
domestic consolidated subsidiaries, and sales of overseas 
consolidated subsidiaries excluding sales to Japan.