Despite the positive effects of the government's economic policies, domestic demand for steel remained sluggish as private-sector demand remained stagnant, reflecting slack personal consumption. Although efforts to increase exports were hindered by the U.S. government's antidumping charges, shipments to Southeast Asia recovered significantly and led to an overall increase in exports.

  At Kobe Steel, a number of factors pulled down Iron and Steel Sector sales 4.8% compared with the previous fiscal term, to 499.1 billion yen. Our efforts to increase sales resulted in higher shipments over the previous fiscal term. However, a shifting of the product mix to lower-end steels and weak sales prices led to a decline in overall sector sales.

  In steel castings and forgings, lackluster domestic demand for a principal product, crankshafts, resulted in a substantial decline in sales of this product.

  Sales of our titanium products were adversely affected by a slump in plant construction, both domestically and abroad, while exports were depressed due to the strength of the yen. As a result, total titanium product sales decreased in comparison with the previous fiscal period.

  Sales of steel powder, on the other hand, rose as the Company was able to take advantage of the rapid growth in Asian demand.

  Domestically, sales of welding consumables were down, due to continued low demand, notably in construction but extending across all user industries, as well as due to strident demands from customers for price cuts. Overseas, the sharp appreciation of the yen led to a substantial decline in exports.

  Research and development led to the successful commercialization of new products: high tensile steel sheet with superior formability and wire rod for ultra high strength valve spring that contribute to automotive lightweighting, and coastal weathering steel with high resistance to salt damage.

  We have been active, too, in welding consumables, bringing to market a new solid welding wire, SE Wire, for use in semi-automatic welding. This wire uses a special surface treatment in place of a copper coating. In the field of welding systems, Kobe Steel has developed software for robot welding systems, K-OTS32, an off-line teaching system by which an operator at a computer can teach the welding robot new welding procedures. In addition, we have developed and marketed robot welding systems with this software installed for use in large-scale structure fabrication, such as for bridges and ship panels.

  Turning to capital investment, we pressed ahead with a series of investments that will sharpen our competitive edge in wire rod, steel plate, and steel sheet. Of particular note are the investments we made at our Kakogawa Works. In May 1999, we completed the refurbishment of the No. 8 wire rod mill, while in October 1999 we finished work on improving the measurement accuracy of steel sheet. In December 1999, we completed installation of a new hot rolling sizing press.

  Also at Kakogawa, in April 1999 we began operating a facility for reusing dephosphorized flux in the hot metal pretreatment of molten iron. In February 2000, we started using waste plastic as a supplement to coal used in blast furnaces in order to recycle resources as well as decrease costs.

  Looking at developments in our Group companies during the course of the year, in October 1999 we merged Daiichi Taika Renga Co., Ltd., and Shinagawa Rozai Co., Ltd., to reduce manufacturing and sales costs of refractory bricks, and renamed the new company Sera Techno Co., Ltd. In a similar move, we merged Shinko Kaiun Co., Ltd., and Shinko Rikuun Co., Ltd., to form Kobelco Logistics, Ltd., thus paring distribution costs. Together with Sumitomo Metal Industries, Ltd., we also established a joint venture, Zirco Products Co., Ltd., to consolidate the nuclear fuel cladding tube business of our subsidiary Kobe Special Tube Co., Ltd., with that of Sumitomo Metal. In specialty steels, we increased our equity stake in Nippon Koshuha Co., Ltd., and made it a subsidiary. Most of its bearing steel production and all of its sales operations are being transferred to Kobe Steel to refocus the positions of both companies in the specialty steel market.

  To bolster the Company's stainless welding consumables business, we have established Shinko Taseto Co., Ltd., in conjunction with NOF Corporation in December 1999. Kobe Steel put up 66% of the equity and NOF provided the remaining 34%.

  Overseas, we merged the steel bar business at USS/KOBE Steel Company, our joint venture with USX Corporation, with Republic Technologies LLC. The new company now has an impressive share of the market for top-quality wire rod and bar. The remaining pipe business of USS/KOBE was sold to USX. The second line at PRO-TEC Coating Company, our joint venture with USX, went into operation in autumn 1998. Last year, it nearly reached its annual production capacity of 1 million short tons of hot dip galvanized steel sheet, making it the largest producer of this product in the United States. In response to robust demand, Kobelco Metal Powder of America, Inc., which manufactures steel powders, is boosting production capacity.

  Our Thai wire rod processing venture, Kobe CH Wire (Thailand) Co., Ltd., registered a healthy increase in production attributable to the recovery of the Asian economy and is currently increasing its processing capacity. Demand is brisk, too, for solid welding wires used in the automobile industry produced by Kobe MIG Wire (Thailand) Co., Ltd. Kobe Welding of Korea Co., Ltd. is operating at full capacity, thanks to the booming Korean shipbuilding industry.

  The IPP business will contribute to our profitability in the 21st century. Construction is proceeding on schedule so that start up of the No. 1 Power Plant, with a generating capacity of 700,000 kilowatts, at Kobe Works can commence in April 2002. Construction of the No. 2 Power Plant, which will also have a generating capacity of 700,000 kilowatts, will begin in 2001. By 2004, when both plants are operational, we will have 1.4 million kilowatts of capacity. In proceeding with this project, Kobe Steel is placing top priority on environmental protection and installing the most advanced protection equipment. We are aiming to construct a clean and safe urban power station of an entirely new type, focusing on energy conservation and accident prevention. In doing so, we are making optimum use of our infrastructure and know-how and endeavoring to contribute to the development of local industry and society.

  In fiscal 2000, domestic demand for steel is expected to rise. While steel demand for construction purposes is expected to shrink due to curbed public-sector investment, a modest recovery in private-sector capital investment is forecast to lead to an increase in steel shipments to the manufacturing industry. Looking overseas, overall exports are likely to remain flat. Although there are fears of a contraction in demand in the United States and Europe, demand in Asia is likely to remain at high levels. The export environment for welding consumables is predicted to be reasonably firm, but domestic demand is forecast to remain lackluster.

  With their own survival at stake, our major customers are slashing the number of suppliers with whom they deal. Against this backdrop, we are striving to bolster shipments and maintain or even improve sales prices, as well as rationalize our operations and further reduce costs. To enhance our competitiveness, we are looking for rapid returns on investments, pursuing efficient, results-oriented R&D, strengthening our overseas production facilities, and integrating our Group companies. Playing to our strengths, we intend to raise our presence in each of the markets in which we operate.