Note: These figures include inter-segment sales.	Renovation of the No. 7 wire rod mill at Kobe Works will enable Kobe Steel to maintain its position as one of the world's leading producers of quality wire rods.
A second hot-dip galvanizing line at PRO-TEC is scheduled to begin production in autumn 1998.	Kobelco Welding of Europe recorded strong sales as demand for flux-cored wire for stainless steel continued to grow rapidly in Europe.

Despite lower demand from the construction industry, domestic sales of steel increased during the first half of the fiscal year due to robust demand from the automobile and shipbuilding industries that was supported by brisk exports. In the second half of the year, however, a further drop in demand from the construction industry, together with decreased demand from manufacturing industries resulting from sluggish exports and weak domestic demand, held total sales of steel in Japan to approximately the same level as in the previous fiscal year. Overseas, despite a sudden worsening of market conditions from the beginning of 1998 owing to currency instabilities in Southeast Asia and South Korea, total steel exports improved due to favorable exports in the first half of the fiscal year. As a result, total sales of steel rose from the previous fiscal year. Sales of castings and forgings increased thanks to favorable demand, particularly from the shipbuilding industry. We recorded an increase in sales of titanium products because of strong domestic and overseas demand. In steel powders, despite a harsh operating environment, stepped-up sales efforts yielded higher sales. Sales of welding consumables were up because of firm domestic and overseas demand from shipbuilders and a strong marketing campaign to expand domestic sales of flux-cored wire. Although our electronic materials, polymer, and composites businesses posted sluggish results, we recorded steady growth in sales of medical materials, including artificial hip joints that we developed using our titanium alloy technologies. As a result, total sales in the Iron and Steel Sector in fiscal 1997 increased 6.5%, to 601.4 billion yen. Regarding our R&D activities in fiscal 1997, in wire rods we made efforts to commercialize high-strength steel for suspension springs, while in steel sheet we commercialized a precoated metal sheet with outstanding formability and processibility. In polymers, we developed and commercialized products in our semiconductor test wafer business. Capital investments during the fiscal year focused on raising product quality, rationalizing operations, and lowering costs. Also, to further strengthen our iron and steel operations, we made investments for renovating our wire rod mills as well as investments at Kakogawa Works for a heat-treatment leveler for plates and a sizing press for hot-rolled strip. In our welding operations, capital investments were aimed at increasing production of flux-cored wire for mild steel at our Ibaraki Plant and flux-cored wire for stainless steel at our Fujisawa Plant. Overseas, USS/KOBE Steel Company, a joint venture in the United States with USX Corp., has completed investments to modernize its facilities and is now responding to needs for high-grade steel, including wire rod for suspension springs and tire cords. Another U.S. joint venture with USX, PRO-TEC Coating Company, achieved the world's highest annual production volume for a single hot-dip galvanizing line for the third consecutive year, supported by robust demand for high-grade galvanized steel sheet from the automobile industry. A second hot-dip galvanizing line, with an annual production capacity of 400,000 short tons, is scheduled to begin operation in autumn 1998. As a result, PRO-TEC will have a total annual production capacity of 1,000,000 short tons. Kobelco Metal Powder of America, Inc., which manufactures steel powders, is increasing its production to meet robust demand for steel powders from the automobile industry. Despite the present economic turmoil in Thailand, Kobe CH Wire (Thailand) Co., Ltd., a steel wire processing base in Thailand that commenced operations in February 1998, has been receiving quality certification from manufacturers of automobile fasteners and is making steady progress in establishing a foundation for the future. As for our overseas welding operations, Kobelco Welding of Europe B.V., a manufacturer of flux-cored wire for stainless steel based in the Netherlands, recorded a steady increase in sales. However, our subsidiaries in Asia faced a difficult environment due to economic turmoil throughout the region. In new business fields, we concluded a contract in January 1998 to supply The Kansai Electric Power Co., Inc., with an additional 700,000 kW of electric power from a second coal-fired plant to be constructed at Kobe Works. When the two plants are completed, Kobe Works will be able to generate 1.4 MW of electricity. In carrying out our electric power business, we are giving top priority to environmental protection as we strive to build clean and safe electric power generating facilities that harmonize with the surrounding communities while contributing to the further development of local industry and society. In addition, by maximizing the use of our existing infrastructure and know-how, we aim to restructure our business and strengthen our profit base. Also, to expand the use of steel in new fields, we have been active in the steel-frame house business since fiscal 1996. During the year under review, we received qualification for our steel-frame house structural system from the Ministry of Construction and carried out activities to promote the use of steel in residential construction. Difficult conditions are expected to persist in the domestic market for iron and steel products during fiscal 1998. In overseas markets as well, the environment for exports is likely to worsen due to ongoing economic turmoil in Southeast Asia and South Korea. Moreover, an overall decline in demand for welding consumables is likely. Amid this challenging environment, we will continue to make efforts to maximize sales volume; maintain or improve product prices; steadily proceed with rationalization and cost-reduction measures; aim for the rapid start of operations; carry out efficient capital investments and R&D for projects that represent strategic investments; and expand and strengthen the foundation of our overseas production bases. Through these measures, we aim to further bolster our competitiveness.