Business
StrategyGraphite Electrodes

P29-30Carbon BlackP31-32Fine Carbon

P33-34Smelting and Lining

P35-36

Industrial Furnaces and Related Products P37-38

27

Friction Materials

P39

Anode Materials/Other Operations

P40

Tokai Carbon Co., Ltd.

Integrated Report 2022

28

Business Strategy

Business Strategy

Graphite Electrodes

Large diameter with higher quality standard.
We will contribute to support the coming expansionof the EAF and its higher productivity.

Business
Segment
Sales Ratio

17.5%

Mitsuharu Nobata
Q

Roles of Our Products and Their Connections with Society
There are two methods of steel production: The blast furnace
method and the EAF method. In the blast furnace method, iron is
produced through a process of reducing iron ore, while in the EAF
method steel scrap is melted in an EAF and recycled as steel products.
Graphite electrodes are used as conductors in an EAF to melt steel
scrap at once by arc discharge. The temperature of the electrodes in
an EAF exceeds 1,600°C, and graphite electrodes, which can be used
under such harsh conditions, are indispensable for EAF steelmaking.
We support the stable operation of EAF by supplying electrodes thatcan withstand high thermal shock and have high strength.

What is your current market position andcompetitive advantage?

The world supply capacity of graphite
electrodes, excluding China, is less than 800,000
tons per year. Our supply capacity is approximately
100,000 tons, giving us a 13% share of the global
market in 2021, ranking us fourth in the world. We
have operational sites at three major demand centers
as Asia (Japan), Europe (Germany) and the U.S., This
platform allows us to procure raw material, produce,
sell and take care of the customer when the electrodes
are used, which helps us maintain longer relationships
with customers and improve quality to match theirneeds. The world’s best manufacturing technologies
are shared among the global production sites, which
also support our performance to be outstanding.

A

Q

How was business performance for thesegment in 2022?

In 2022, net sales increased 46.8% fromthe previous year to 59.630 billion yen andoperating income was 8.032 billion yen (operating
loss of 400 million yen in the previous year) due to theA

Main Products

General Manager,
Graphite Electrode Division

recovery of the electrode market, higher selling prices
in the second half of the year, and steady sales oflarge-diameter, high-quality electrodes in the UnitedStates, where EAFs are used for 70% of the total steel
production.

Q

What is your outlook for future market trends
and what are your priority measures?

The EAF method can reduce CO2 emissions
to about 1/4 that of the blast furnace method.
From the perspective of carbon neutrality, there is a
global shift from blast furnaces to EAFs. That said,
steel production using the EAF method is expected toincrease from the current 500 million tons to 700 million
tons by 2030. Demand for electrodes will increase
accordingly, especially for large-diameter electrodes
used in large furnaces. The large-diameter electrodemarket demands high quality, in other words, a market
where we can demonstrate our competitive advantage.
Since these are high value-added products, we intend
to raise production capacity of the larger ones to meetstrong demand.

A

TOPICS
Efforts to Reduce CO2 Emissions from Electrode
Manufacturing

29

Graphite Electrodes for DC Furnaces(direct current furnaces)

Graphite Electrodes for AC Furnaces(alternating current furnaces)

Size: 22-32 inches (550-800 mm)

Size: 16-28 inches (400-700 mm)

Electrodes for DC furnaces, which require 1 column ofgraphite electrodes. Often used for high-current operations,the allowable current amount increases due to the larger
diameter. The largest size diameter currently available is 32
inches.

Electrodes for AC furnaces, which require 3 columns ofgraphite electrodes. This is the main type of graphite electrodeused for EAF, with electrode diameter sizes of 20-28 inches.

Tokai Carbon Co., Ltd.

The baking process carried out in the manufacture of graphite electrodes
uses a large amount of fossil fuels. Tokai Carbon is working to reduce CO2
emissions and save energy by improving the thermal insulation propertiesof our firing facilities. We are also working to reduce CO2 emissions byswitching fuels and using green electricity for the entire plant.

Integrated Report 2022

30

Business Strategy

Business Strategy

Carbon Black

Stable supply to the local needs. We will propel
our efforts toward carbon neutrality through ourenvironmental equipment and technologies.

Business
Segment
Sales Ratio

40.7%

Norikazu Kawabe
Q

Roles of Our Products and Their Connections with Society
Carbon black is mainly used for tires. This material, which can make up
about 30% of the weight of a tire, supports the safe driving of trucks, buses andpassenger cars, which are indispensable for daily life. Due to its characteristicof increasing the strength of rubber, it is used in a variety of other products
besides tires, such as rubber hoses, belts, and anti-vibration rubber.
Carbon black is also used as a pigment for coloring. It supports society andour daily lives in familiar ways since it is used for black pigment in plastics, ink
for printing newspapers, documents and more.

Main Products

General Manager,
Carbon Black Division

What is your current market position andcompetitive advantage?

Tokai Carbon started the production of carbon
black for the first time in Japan in 1941. Since
then, the technology and know-how that we havecultivated over many years as well as our solid trackrecord have become our major strengths.
Since carbon black has a low bulk density and islightweight, manufacturing and supplying carbon
black at locations where it is in demand will reducetransportation costs and CO2 emissions. We havethree carbon black plants in Japan, three in the U.S.,
one in Thailand, and one in Canada. Our supply
system, which is based on local production for local
consumption, is the source of our competitiveness.
Besides being a reinforcing material for rubber,carbon black is also used as a pigment for coloring.
It is used as a black pigment for plastic such as TV
frames and as ink for newspapers. In addition, byapplying a special surface treatment to our carbon
black, it is used as black ink used in inkjet printers
by various manufacturers, supporting society and ourlives in familiar ways.

A

Q

How was business performance for thesegment in 2022?

In 2022, sales were strong due to strong demand
for aftermarket tires for trucks and buses. In
addition, the rise in raw material costs was reflected in
the selling prices. As a result, net sales increased 39.2%
year on year to 138.484 billion yen and operating income
increased 39.8% year on year to 12.282 billion.

A

Q

What is your outlook for future market trends
and what are your priority measures?

Global demand for carbon black is expected to
grow at an annual rate of 4% to 5% through 2025,
driven by increased demand for replacement tires and thewidespread use of automobiles in emerging countries.
We have been intensively investing in large-scale
environmental facilities at our U.S.-based plants for several
years with system installation expected to be completed
by 2023. As a result, we are now ready to meet the strong
demand for carbon black in the U.S. in the future. In Thailand,
we are planning to start operation of a new plant in 2025 ona new site owned by the company. We will further improve
productivity and quality, reduce environmental impact, andbuild a sustainable supply system.

A

TOPICS

SEAST

Aqua Black

SEAST is a type of carbon black that is added to rubber
to make it stronger and more resistant to wear, improving
vehicle fuel efficiency. It is used in the rubber parts ofindustrial machines and various sizes and models of tire. Asa furnace black product for rubber*, SEAST proudly holds
top share on the domestic market.

Aqua Black is used as black ink in inkjet printers. Sincecarbon black is manufactured from oil, it is difficult to blend
with water. We succeeded to modify it to mixable properties
using our exclusive surface treatment technology. The
technology allows to realize the deep black color, which is
unique to carbon materials.

Promoting the Development of Technologies
for a Recycling-oriented Society
We are developing advanced technologies that contribute tocarbon neutrality and to reducing environmental impact. Specifically,
we will develop materials to extend the life of tires and other rubber
products, utilize raw materials other than those derived from fossil
fuels, recycle used tires, and recover/reuse energy. This will beachieved through co-creation with customers, business partners,
universities, and other research institutions.

* Carbon black produced by the incomplete combustion of heavy oil

31

Tokai Carbon Co., Ltd.

Integrated Report 2022

32

Business Strategy

Business Strategy

Fine Carbon

We will expand the supply of materials that contributeto semiconductor sophistication and productivity
improvement to support the higher market demand.

Business
Segment
Sales Ratio

14.5%

Hideo Shin
Q

Roles of Our Products and Their Connections with Society
Fine carbon is a carbon product characterized by its denseness, andisotropic graphite, which is manufactured using micron-level fine carbon
particles, is a typical fine carbon product.
Isotropic graphite, with its high purity and ability to withstand hightemperatures, is used in manufacturing processes of semiconductors, solar
cells, airplane engine parts, and various metals.
Since materials of particularly high purity are required in the semiconductor
field, demand for fine carbon has been growing along with the developmentof communication technology, AI, IoT, and other technologies. Also,
since semiconductors are quickly evolving, components incorporated insemiconductor manufacturing equipment are subject to stricter conditions.
This means that the materials themselves must also evolve. In response, weplay a role in co-creating industrial development.

Main Products

What is your current market position andcompetitive advantage?

With production bases in Japan, South Korea,
China, the U.S., Germany, Italy, and the United
Kingdom, which are countries of demand, we are thethird largest supplier of isotropic graphite material in
the world with an annual supply capacity of 7,000 tons.
We have expertise in controlling baking temperatures toachieve stable quality with little variation.
We are the global top supplier of SiC Focus Rings,
which were developed and put into production in 2013.
Because of its higher strength and lower degree ofwear and tear compared to metallic silicon and quartz
glass, its use is expanding in increasingly sophisticatedsemiconductor manufacturing processes. At our bases inJapan, the U.S., and South Korea, where semiconductor
device manufacturers and semiconductor equipment
manufacturers are concentrated, we have an integrated
production system that covers everything from forming
to surface CVD-SiC coating to accurately meet customer
needs and capture demand.

A

General Manager,
Fine Carbon Division

Q

How was business performance for thesegment in 2022?

In 2022, while demand for smartphones and PCs
declined, demand for power semiconductors
such as SiC semiconductors steadily increased, andsales of SiC Focus Rings and products for generalindustrial applications expanded, resulting in a 26.2%
increase in net sales year on year to 49.393 billion yen
and a 54.3% increase in operating income year on year
to 14.825 billion yen.

A

Q

What is your outlook for future market trends
and what are your priority measures?

The semiconductor market is expected to growfurther in the medium term due to the spread of
IoT, AI, and EVs. Since semiconductor manufacturers
are enhancing their production systems and improving
the performance of semiconductors and manufacturing
processes. Under these circumstances, the proportion of
SiC products used in the semiconductor manufacturing
process is expected to increase. We plan to increase
our SiC production capacity 1.5 times higher in 2025
from the 2022 level to capture the demand.

A

TOPICS
SiC Focus Rings Support the Evolution of
Semiconductors

33

Isotropic Graphite Material

Solid Silicon Carbide (SiC)

In contrast with ordinary graphite, which has anisotropic
properties, because of its importance in uniformity, fine carbon
material is based on isotropic graphite. It is used for electric
discharge machining for creating complex-shaped molds,
components for high-temperature processing furnaces,
nozzles for continuous casting, and many other products.

Manufactured using our unique chemical vapor deposition
method, solid SiC is a super high-purity solid siliconcarbide manufactured by thickening the SiC coating film,that is normally 100 micron (0.1 mm) thin. With its strengthand corrosion resistant properties, it is an ideal material for
semiconductor equipment parts.

Tokai Carbon Co., Ltd.

Focus rings are used in the etching process to create grooves insemiconductor circuits using plasmaized gas. The focus ring is placed on
the outside of the silicon wafer and is an important component necessary
to concentrate the plasma on the wafer and ensure uniform processing.
As the number of etching cycles increases and plasma output becomes
higher with the miniaturization of semiconductors and the move toward
three-dimensional design (stacking), there has been a shift to solid SiC
rings that have higher plasma resistance.

Integrated Report 2022

34

Business Strategy

Business Strategy

Smelting and Lining

With the aim of realizing a sustainable society,we will expand the use of products that reduce
environmental impact.

Business
Segment
Sales Ratio

19.2%

Takashi Masaki
Q

Roles of Our Products and Their Connections with Society
Our Smelting and Lining business consists of three main products:
Cathodes, carbon electrodes, and blast furnace blocks.
Cathodes are used in electrolytic furnaces for smelting aluminum. Throughthe supply of cathodes, we contribute to the stable production of aluminum.
Aluminum is lightweight, highly recyclable, and widely used in industries forautomobiles, airplanes, trains, and beverage cans.
Carbon electrodes are used to produce metallurgical grade silicon, a material
used in semiconductors, and support the production of semiconductors, forwhich demand is expected to grow further.
Furnace linings are installed as refractory materials in blast furnaces used
to produce steel for automobiles and other products.
In this way, we contribute to the development of society by supplying key
components that are indispensable for the production of each material.

Main Products

General Manager,
Smelting and Lining Division

What is your current market position andcompetitive advantage?

The company has manufacturing facilities in
Poland and France, sales and service basesin China, and headquarters functions in Germany.
We are the global top supplier of high quality cathodeand blast furnace blocks while second for carbon
electrodes. Based on technologies and know-how
accumulated through research and development, we
supply products with stable quality that is not affectedby raw material characteristics.
Cathodes, carbon electrodes and furnace linings are
manufactured using the same equipment and following
the same heat treatment process. Therefore, what
to produce is switchable that helps to optimize theproduct mix according to the demand of each product.
This kind of product line is unique, which is one of ourstrength.
In addition, each product requires significant
investment and various manufacturing know-how.
Since they are essential components for customers’
production, changing suppliers entails risks. That said,
the entrance barrier for this business is extremely high.

A

Q

How was business performance for thesegment in 2022?

In 2022, shipments of furnace lining decreased
due to the impact of the Ukrainian crisis whilesales of cathodes and carbon electrodes remained
firm. We also made efforts for adjusting sales prices
to cover cost increases and to maximize production
output. As a result, net sales increased 31.2% year on
year to 65.203 billion yen, however, operating income
decreased 30.1% to 1.345 billion due to the recordingof goodwill amortization and other expenses.

A

Q

What is your outlook for future market
trends and what are your priority measures?

Aluminum, which is lightweight and highly
recyclable, is attracting increasing attention fromthe viewpoint of reducing the environmental impact ofautomobiles, such as improving fuel efficiency. Global
demand for aluminum is expected to grow at an annual
rate of 3 to 4%. With the expected increase in aluminumproduction and expansion of electrolytic furnaces, wewill capture the growing demand for cathodes. In the
China market, we have been rolling out the RuC®, astrategic product that reduces environmental impact,from 2022 and working on to spread it over.

A

TOPICS
RuC® - a strategic cathode product35

CathodesCarbon Electrodes

Cathodes are used in electrolytic furnaces for smelting
aluminum. These products possess excellent thermal
conductivity, electrical characteristics, and mechanicalcharacteristics. Using coke as raw material, general-purpose
carbon cathodes are heat-treated at 1,000°C and high-end
graphitized cathodes at 2,500°C or higher.

Used as electrical current conductors in submerged electric
furnaces (melting furnaces) for production of metallurgicalgrade silicon, a material used in semiconductors, ferroalloys,
phosphorus, lead, nickel, and copper.

Tokai Carbon Co., Ltd.

When installing a regular cathode in an electrolytic furnace, the customer must
cast a steel bar for conductivity. RuC®, a product that we began supplying in
2017, is a cathode that incorporates a connector rod, which is a rod-shapedmaterial for conducting electricity. This eliminates the need for customers to
install the conductor. Furthermore, since the connector rod is made of copper,
it has excellent electrical characteristics. Therefore, it is possible to reduce
the power consumption of aluminum smelting by approximately 3%. We willcontribute to the reduction of environmental impact by spreading RuC® in orderto make it an industrial standard.

Integrated Report 2022

36

Business Strategy

Business Strategy

Industrial Furnaces and Related Products
Business
Segment
Sales Ratio

Contribute to our customer’s higher growth,higher quality and the stable production,
as a top brand supplier.

4.8%

Akihiko SatoQ

Roles of Our Products and Their Connections with Society
Many components such as MLCCs (Multi-Layer Ceramic Capacitors),
lithium-ion batteries, and glass are used in smartphones and cars.
Industrial furnaces are used for heating, sintering, melting, and heat
treatment at predetermined temperatures in the production of ceramics,
electronic components, secondary battery materials, metals, glass, andpowders. Based on the technology and know-how cultivated over many years,
the temperature (1,000 to 1,500°C), ambient gas (nitrogen, hydrogen, etc.),pressure, etc. are set according to the material. We supply industrial furnaces
capable of manufacturing large quantities of parts with stable quality. EREMA
heating elements installed and used in industrial furnaces were the first to be
sold commercially in Japan in 1927 and now we are the biggest producer ofsilicon carbide heating elements in the industry.
In this way, we contribute to society by supplying equipment and products
essential for the manufacture of electronic components and lithium-ion
batteries.

Main Products

President,
Tokai Konetsu Kogyo Co., Ltd.

What is your current market position andcompetitive advantage?

Over the years, we have honed our technology
by supplying major electronic component
manufacturers in Japan. As the performance ofelectronic components and battery materials evolve
significantly, we respond quickly to customer needs,building a track record of performance and trust. Even
for large-scale industrial furnaces that process large
quantities of parts, we have achieved the performance
to precisely control the temperature and atmosphere
gas in the furnace that lead to customers’ stableproduction and quality.
Since baking of electronic components and lithiumion batteries is an important process in the customer’s
production, industrial furnaces are an industry withhigh barriers to entry where trust formed by anexcellent track-record is important. The Tokai Carbon
Group supplies industrial furnaces and EREMA heating
elements to manufacturers around the world, mainly inJapan, China, and Korea, and has established “Tokai”
as a leading industrial furnace brand name with 50%
share of the global market for industrial furnaces
designed for MLCC sintering and 30% share of the
global market for heating elements.

AQ

How was business performance for thesegment in 2022?

In 2022, although demand in the energy-related
sector remained firm, net sales decreased 9.7%
year on year to 16.272 billion yen due to the impactof the lockdown in China and the slowdown in theelectronic component-related industry. Operating income
decreased 17.1% year on year to 4.475 billion yen.

A

Q

What is your outlook for future market
trends and what are your priority measures?

The MLCC market is expected to grow at anannual rate of approximately 10% and thelithium-ion battery market at an annual rate of 20-30%
backed by a growth in 5G base stations, EVs with
its electrification. There should be a series of capital
investment coming on line from our customers.
Under these circumstances, we are expanding our
production capacity for industrial furnace and EREMA
heating elements. Expansion for industrial furnaces
production in Shiga plant, Japan will be completed
in January 2023. Expansion for heating elements
production in Sendai Plant, Japan will be completed in
2025 bringing the capacity up to 1.6 times larger thanthe current level.

A

TOPICS
Promoting initiatives to reduce CO2 emissions

37

Industrial Furnaces

EREMA Heating Elements

MLCCs and lithium-ion battery materials are inserted into
industrial furnaces for heat treatment. We custom design
and manufacture our industrial furnaces taking into accountheat treatment conditions and material insertion methods tomeet customer needs.

EREMA heating elements are heating elements composedof high-purity SiC (silicon carbide). Since the heat dissipation
per unit area is very large, the temperature can be raised up
to 1,600°C. It is an environmentally-friendly heat source that
does not create air or noise pollution.

Tokai Carbon Co., Ltd.

For industrial furnaces, we are working to improve technologies to effectively
utilize the energy input during heat treatment in order to save energy. As for
EREMA heating elements, we have developed and introduced environmentallyfriendly products and launched an initiative to collect and recycle used products
from 2023. In terms of production, we are introducing forms of renewable energy
such as solar power that contributes to our energy saving and high efficiency
production.

Started recycling the cold ends ofused EREMA heating elementsCollection of Cold Ends
Cold EndHot Zone

Cold End

Technology for recycling
hot zone sections into
high-purity SiC is underdevelopment

Processing
Use of EREMA Heating
Element Cold Ends

Integrated Report 2022

38

Business Strategy

Business Strategy

Friction Materials

Anode Materials/Others

Business
Segment
Sales Ratio

Business
Segment
Sales Ratio

2.8%

0.5%

Roles of Our Products and Their Connections with Society

Roles of Our Products and Their Connections with Society

To “stop things that move” and “transfer power”, friction materials are used inbrakes and clutches of motorcycles, construction machinery, agricultural machinery,machine tools and robots.
Sintered metal friction materials, our main products, are manufactured by sinteringand processing a mixture of graphite, copper, etc. They are highly durable and areincorporated into brakes and clutches for large motorcycles and special vehicles(cranes, mining wheel loaders, combine harvesters, tractors, etc.). In addition, resinbased friction materials are used in control parts of machine tools and industrial
robots.
We simplify packaging and utilize returnable containers to reduce environmental
impact when delivering our goods. In manufacturing, we are working to reduce CO2
emissions by switching to carbon-free power at our plants.

Lithium-ion batteries are found in mobile phones, hybrid cars, and EVs. Graphite is used for the anodes of these batteries. Ouradvanced graphite manufacturing technology allows us to produce and supply high-quality, low-cost anode materials with less
CO2 emissions during production.

Direct match to the needs.
Our product will generate the
new market.
Q

Hirofumi
MasudaWhat is your current market position andcompetitive advantage?

We develop and propose products that matchthe detailed needs of our customers. Our
technology and know-how built over a long history
makes that possible. It was 1949 when Tokai was thefirst to produce sintered metal friction materials formotorcycles in Japan. Today, we dominant 60% sharein friction materials used for large motorcycles in Japan.

Q

How was business performance for thesegment in 2022?

A

In 2022, despite a slowdown in the Chineseconstruction machinery market and supply

Tokai Carbon Co., Ltd.

In 2022, sales of anode materials decreased 35.1% from the previous year to 1.888 billion yen due to sluggish sales of EVs inwhich our products are used and intensified competition caused by the emergence of new companies.
On the other hand, since efforts toward local production for local consumption of EV components are spreading in Europe andthe U.S., local production of anode materials for lithium-ion batteries is being encouraged. With heat treatment manufacturing
facilities in Europe and the U.S., we are well positioned for growth opportunities to utilize Japanese anode material production
technology in regions of demand. Currently, the production technology for anode materials is being transferred from Japan to ourbase in France under the umbrella of Tokai COBEX. The production capacity will be enlarged according to the market expansion.

TOPICSA

39

Looking back on 2022 and priority measures for the future

General Manager,
Friction Materials
Division

Positive terminal (+)

Electrolyte

How lithium-ion batteries made using graphite work
Rechargeable lithium-ion batteries for repeated use can be charged and discharged
by taking in and releasing lithium ions by using the movement of lithium ions in the

chain disruptions, sales increased 5.4% from theprevious year to 9.362 billion yen due to firm demand
for major applications.

Q

What is your outlook for future market trends
and what are your priority measures?

anode material. This design utilizes the structure and chemical stability of graphite,

Separatorand has a larger battery capacity and operating voltage than other rechargeable
batteries. It is smaller and lighter as well. It can withstand additional charging when
it is not fully discharged.

Anode
Negative terminal (–)

CathodeSeparator

In addition to expanding sales of sinteredmetal friction materials and resin-based friction
materials, which are our main products, we will also work
to develop the market for off-road vehicles, including four
wheeler buggies, which are gaining popularity mainly in
the U.S. On the production side, we are promoting theautomation of manufacturing and utilizing AI for material
formulation for further product development.

A

Integrated Report 2022

40