Sanyo Special Steel Co., Ltd.
IR Briefing Regarding the Business Results for the FY2023 3Q
Q&A Summary

Date: Friday, February 2nd, 2024
Speaker : Kozo Takahashi, Director, Member of the Board and Managing Executive Officer
Takashi Yatsunami, Managing Executive Officer* Please be noted that the actual Q&A session was in Japanese and this English
translation is prepared for reference purpose only.
----------------------------------------------------------------------------------------Q．Regarding demand situation, industrial machinery appear to mainly depend on Chinese economy
and construction machinery is expected to weaken for a while. Given the situation, should weassume Sanyo’s sales volume will recover to levels around 70 thousand tons per month after
destocking is completed? Also, how do you see recovery of OVAKO’s sales volume?
A．We assume Sanyo’s sales volume will recover to levels around 70 thousand tons per month after
destocking is over although specific timing for the end of destocking period is still unclear. Negative
effects from destocking will decease gradually but they might remain during FY2024/1Q.
OVAKO’s sales volume is expected to recover gradually along with the expected declining ofinterest rates despite economic uncertainty in Europe. Easing of high interest rates may to startaround June 2024, which would lead to demand recovery.
Q．Regarding OVAKO, could you tell us why you consider that easing of high interest rates in Europe
will lead to recovery of demand for specialty steel?
A．Prevailing high interest rates have had negative impact on manufacturing sentiment and activity
including capital investment. Therefore, we consider that easing of high interest rates will havepositive impact on European economy.
Q．Regarding sales volume, if weak demand for industrial machinery for China is structural, would it
be difficult to return to previous sales levels? What are your current thoughts on mid to long-term
outlook for specialty steel demand in Japan and Europe?
A．Even though stagnant Chinese economy has huge impact on demand from Japanese industrial
machinery, some recovery associated with the end of destocking phase is anticipated. Whether
we can enjoy recovery in demand from China depends on developments related to local
procurement of specialty steel in the country. Most of our specialty steel is used for industrial
machinery parts and if local procurement of materials for these parts progresses overseas, demandfor our materials would decrease. Considering carbon neutrality and geopolitical risks, we believethat risk of progress in local procurement is not high for the time being, but it is necessary toincrease profit not only by increasing sales volume but also by improving margins.
The outlook for Europe has not changed dramatically from outlook in the revised 2025 mid-term
management plan announced in July 2023. As for OVAKO, its advantage of being only specialty
steel manufacturer capable of supplying its entire product as CN (green) steel is still unmatched.
Therefore, we believe OVAKO’s sales volume is expected to bounce back in line with recovery ofEuropean economy.

Q．Could you explain impact of changes in OVAKO’s sales volume for each customer industry?
A．Of OVAKO’s sales volume, those for automotive make up slightly less than half and construction
and industrial machinery account one-third. Sales volume for each customer industry is equallyaffected by demand decrease.
Q．Do you consider that it is possible to broadly raise base price by 10 thousand yen per ton fromFebruary 2024 contracts amid current weak demand?
A．We recognize that it is not easy to raise base price while supply-demand balance has not tightened
yet. However, other steel manufacturers have also announced raising base price, and overall trend
in the industry is heading toward raising prices. We will continue to provide detailed explanations
to our customers to gain their understanding.
Q．Could you tell us details of current cost increase factors?
A．Not only electricity and logistics costs, but also labor costs and expenditures on other materials,
outsourcing, repair and maintenance are increasing due to current trend of raising wages.
Q．Regarding changes from FY2023/2H previous forecast to FY2023/2H revised forecast, could you
explain about negative impact of raw material and fuel prices (-1.0 billion yen) and sales price andproduct mix (-0.9 billion yen)? Especially with regards to raw material and fuel prices, pleaseprovide a supplementary explanation as it seems that there were no major fluctuations in bothmarket trends and exchange rates.
A．Raw materials and fuel costs are based on cost of goods sold, not on purchasing. Electricity andLNG purchased during time of yen’s depreciation are emerging in cost of goods sold after a timelag. However, these costs are basically covered by energy surcharges, adopted for fuel costadjustments. Sales price and product mix is expected to deteriorate due to negative impact of alloysurcharge and the fact that improvement in product mix effects is no longer expected.
Q．Could you tell us cost change from review of nighttime electricity price by KEPCO will be coveredby energy surcharge?
A．It will not be covered by energy surcharge because the change is in base price, not in fuel costadjustment.
Q．We have heard that some automakers have stopped production due to the difficult shipping
conditions in the Red Sea. Does this affect OVAKO?
A．This matter does not particularly affect OVAKO.

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