Sanyo Special Steel Co., Ltd.
IR Briefing Regarding the Business Results for the FY2021 1Q
Q&A Summary

Date: Friday, July 30, 2021
Speaker : Kozo Takahashi, Director, Member of the Board and Managing Executive Officer
Takashi Yatsunami, 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．Could you tell us how much profit or loss is expected at actual basis in the FY2021, i.e., excludingtransient factors such as the impact of changing fiscal year end of Ovako and the time lag of ironscrap surcharge?
A．The FY2021 ordinary income forecast of 10.5 billion yen includes the effect of changing fiscal year
end of Ovako by +1.8 billion yen and the iron scrap surcharge time lag of -4.7 billion yen for Sanyoand +1 billion yen for Ovako respectively. Therefore, the genuine ordinary profit of FY2021
excluding these factors would be about 12.5 billion yen. However, if the iron scrap price becomes
higher than the estimated 55 thousand yen per ton, the surcharge time lag impact will be morenegative. We consider it necessary to pay close attention to the trend of iron scrap price.
Q． Could you explain why the increase in sales volume has a relatively large impact on profit andloss at Ovako?
A． Since Ovako has in-house secondary processes and trading functions, Ovako has a relatively
high marginal profit per ton and therefore is affected more by the fluctuation of sales volume. Inaddition to the increase of sales volume, measures to control fixed costs, such as basically hiring
temporary workers to increase production capacity, have also contributed to the profit recovery ofOvako.
Q．With the support of the Swedish Energy Agency and the collaborations with Volvo Group etc.,
Ovako has started construction of a fossil-free hydrogen plant. Could you tell us about the effects
on steel and costs to heat steel using hydrogen?
A． Ovako has already conducted trials to heat steel prior to rolling using hydrogen instead of thecurrent LPG, and has confirmed that heating with hydrogen does not affect quality of steel.
Sweden has abundant carbon free and inexpensive electricity resources; hence, we expect nocost increase, rather, depending on the price of electricity, we even consider the possibility of costsavings.
Q． Although the current market price of scrap iron H2 in Himeji area is about 50 thousand yen perton, the presuppositions after July 2021 is 55 thousand yen per ton, and that of crude oil priceafter July 2021 is 80 dollars per barrel. Have you made these presuppositions from conservative
views?
A．The current market price of scrap iron H2 in Himeji area is a little over 50 thousand yen per ton. In
the business forecast for FY2021, we have made the presuppositions higher than the current
prices since raw material and fuel prices are expected to increase.

Q． You changed the fiscal year end of Ovako from 31st December to 31st March from FY2021.
From now on, I consider that Ovako’s financial performance for the second quarter and the thirdquarter will deteriorate due to seasonal factors. Could you let us know if my assumption is correct
or not?
A．You are exactly right. Ovako has summer holidays for about 1 month in the second quarter (fromJuly to September) and Christmas holidays for about two weeks in the third quarter (from Octoberto December). Therefore, Ovako’s sales volume in 2Q and 3Q will decline and its financial
performance will deteriorate.
Q．Could you tell us Ovako’s operating income for the first quarter of FY2021 (from January to June,2021), divided into January-March and April-June?
A．2.7 billion yen for January-March, 2021 and 3.5 billion yen for April-June, 2021.
Q．What is the market price of scrap iron in Himeji area for the first quarter of FY2021?
A．The average of market purchase price from April to June 2021 is about 47 thousand yen per ton.
Q．How will Sanyo, on non-consolidated basis, pass on the increasing costs of materials to the unit
price of sales, to which you do not apply the surcharge mechanism?
A．The iron scrap surcharge mechanism is not applied to 20% of our sales volume, and almost all ofthem are to distributors. In January and June, we already have announced to raise sales price by
10 thousand yen per ton respectively. If the iron scrap price increases more, we surely will raise
the sales price again. Furthermore, the price of alloys is also increasing. The applied ratio of alloysurcharge is less than that of iron scrap; hence, we have started discussion about applying alloysurcharge to more customers.
Q．On 14 July, 2021, the European Commission has announced about the Carbon Border Adjustment
Mechanism (CBAM), and EU Emissions Trading System (EU ETS). It is said that free allocation ofgreenhouse gas will be decreased from 2026. I suppose that Ovako, whose CO2 emission is very
low, has advantage in the future. Could you tell us how you consider these measures, andwhether Ovako’s products will be affected by CBAM?
A．We expect that the some cost increase might happen in the future due to the revision of EU ETS.
However, since CO2 emission of Ovako is very low, we consider that EU ETS will not affect Ovako
significantly and would not deteriorate Ovako’s relative competitiveness. With regards to CBAM,Ovako’s products are subject to this mechanism if introduced, and we consider the introduction ofthis mechanism be relatively advantageous to Ovako. We will continue to pay close attention to
the developments and details of these two mechanisms.
Q．Could you please tell us the reasons why the profit of the second quarter in FY2021 is expected to
drastically deteriorate compared to that of the first quarter in FY2021?
A．The reasons are as follows;
1) The positive impact of changing fiscal year end of Ovako is included in FY2021/1Q.
2) Ovako has summer outage for about 1 month in FY2021/2Q.
3) Sanyo has summer regular plant outage for about 1 week in FY2021/2Q.
4) The prices of iron scrap and alloys are rising and expected to rise in FY2021/2Q. On theother hand, sales price will not catch up with the rising prices of those materials due to timelag.
The time lag of iron scrap surcharge in FY2021/2Q will be negative by almost 1 billion yen
compared to FY2021/1Q.

Q．Please tell us how Ovako has greatly reduced CO2 emissions since 2018? It is surprising that in2020 Ovako has reduced the emission in the manufacturing process by 54%, compared to that of2015.
A．Ovako has drastically reduced CO2 emissions mainly because of switching to carbon free and costcompetitive electricity. In Sweden and Finland, where Ovako’s production sites are located,carbon free electricity (hydropower, wind power) resources are overwhelmingly abundantcompared to other nations. Ovako has managed to shift to the carbon free electricity without
increasing cost.
Q．Has the demand from customers for Ovako’s products been increasing in EU because of its lowemissions?
A．Regarding the global movement toward carbon neutrality, the interest for Ovako’s products, madewith far low CO2 emissions, has been increasing, and we expect it to further amplify in the future.
In case we would supply carbon free material, we would like to ask the understanding from ourcustomers to pay some premium to supply carbon free steel.

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