Demand for rolled aluminum products remained dull, as growth in the use of small PET bottles and unseasonable weather led to weak demand for aluminum can stock. On the other hand, demand for rolled copper products increased, backed by brisk sales of copper strip for semiconductors.

  Despite these conditions, the Aluminum and Copper Sector's shipments of rolled aluminum products rose over the previous year. Although shipments were sluggish for aluminum can stock, a mainstay product, demand rose for rolled aluminum in automobiles, office equipment, and semiconductor production equipment. Shipments of rolled copper products also exceeded last year's figures, as lively demand for copper strip for semiconductors kept production at full capacity, along with recovery in exports of copper tubes to Southeast Asia.

  However, depressed export sales brought about by the appreciation of the yen and low ingot and cathode prices led Sector sales to decline 11.8%, to 251.5 billion yen. Despite this decline, cost reductions to strengthen profitability produced a significant increase in operating income.

  Regarding R&D, in addition to strengthening such core products as aluminum can stock, aluminum fin material, and copper tubes for air conditioners, we focused on fields that are expected to grow in the future, such as the automotive, information, and telecommunications markets. For the automobile industry, we have developed aluminum sheet with outstanding formability and corrosion resistance for use in body panels, aluminum extrusions for frames with superior shock-absorbing properties, extruded aluminum door beams, and aluminum forgings for use in suspension systems. Moreover, we are leveraging our expertise in welding, surface treatment, and structural analysis to offer new technical services to automakers, as a shift toward lighter-weight vehicles is promoting the greater use of aluminum.

  We have also shown steady results in supplying the information and telecommunication fields, which are anticipated to grow with the IT industry. We are marketing copper alloys for high-strength, high-conductivity leadframes and a corrosion-resistant, surface-treated aluminum vacuum chamber used in semiconductor and LCD production.

  With regard to capital investment, together with Nippon Sheet Glass Co., Ltd., we established Advanced Disk Technology (Malaysia) Sdn. Bhd., to process and market glass substrates for hard disks. This joint venture enables us to meet growing demand for glass substrates and further enhances our disk business.

  In environment-related activities, in fiscal 1998 we installed an arc furnace that we jointly developed with The Tokyo Electric Power Co., Inc., and in fiscal 1999 we installed an additional unit. The furnace improves the recovery rate of aluminum dross produced during melting and enables dross previously handled as industrial waste to be effectively recycled as a resource. We intend to concentrate future capital investment in the automobile, information, and telecommunication fields, where growth is expected.

  Overseas, operations are progressing smoothly at KAAL Australia Pty. Ltd., a joint venture with Alcoa Inc. to produce can stock in Australia. We used to produce aluminum substrates for hard disks in three locations---Japan, the United States, and Malaysia. However, as the market has stagnated due to demand for greater disk capacity and subsequent rapid growth in the use of glass substrates, subsidiary Kobe Precision, Inc., in the United States abandoned the aluminum substrate business in January 2000 and is now concentrating on processing reclaimed silicon wafers used in semiconductor production. As a result, aluminum substrate production is now centered on Kobe Steel in Japan and Kobe Precision Technology Sdn. Bhd. in Malaysia. Together with Advanced Disk Technology's glass substrate production, we are working to maintain our position as the world's market-share leader in substrates.

  In the copper strip business, we are meeting demand in the United States and Europe by licensing local manufacturers to produce copper alloys for the semiconductor, terminal, and connector industries. For the Asian market, Singapore Kobe Pte. Ltd. processes and sells leadframes from its base in Singapore. These activities form a global supply network covering Japan, the United States, Europe, and Asia.

  Demand in Japan for aluminum and copper products is expected to expand, centering on aluminum sheet for the automobile industry, copper strip for semiconductor leadframes, and aluminum sheet for semiconductor fabrication equipment. In particular, automakers are increasingly using aluminum in an effort to produce lighter vehicles in response to environmental considerations.

  Kobe Steel's new midterm management plan focuses on automotive lightweighting as one strategic business area of critical importance. We intend to cultivate joint development with automakers, from design through processing and assembly. We will also strive to create new markets by drawing on our technical development capabilities. Moreover, we will strengthen our overall international competitiveness, focusing on such areas as cost, quality, and customer service, as we work to maintain our position as Japan's leading producer of aluminum and copper products.