Notice of the Annual General Shareholders’ Meeting for the ... · Exercising voting rights (Exercising voting rights by mail) Shareholders are requested to vote on the proposals

Notice of the Annual General Shareholders’ Meeting for the 85th Period

to be held in Osaka, Japan on June 19, 2008

Sumitomo Metal Industries, Ltd.

Osaka, Japan

Editor’s notes: 1. Please note that the official text of this document has been prepared in

Japanese. The information herein stated is provided only for reference purposes. The company is not responsible for the accuracy of the information. To the extent these is any discrepancy between the English translation and original Japanese version, please refer to the Japanese version.

2. The financial statements included in this Notice of the Annual General Shareholders’ Meeting are prepared in accordance with the accounting principles and practices generally accepted in Japan.

3. Shareholders who live in countries outside Japan should exercise their voting rights through the custodians of their shares. Please communicate with your custodian regarding the appropriate procedures to exercise your voting rights.

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(Securities Code: 5405) May 29, 2008 To our Shareholders From Hiroshi Tomono

Representative Director & President Sumitomo Metal Industries, Ltd. 5-33, Kitahama 4-chome, Chuo-ku, Osaka, Japan

Notice of the Annual General Shareholders’ Meeting for the 85th Period Sumitomo Metal Industries, Ltd. (hereinafter “SMI” or “the Company”) invites you to attend its Annual General Shareholders’ Meeting to be held at the date and venue listed below.

If you are unable to attend the Annual General Shareholders’ Meeting, you may exercise your right to vote by mail or electronically (via the Internet, etc.). Please read the reference materials below before you vote. Shareholders’ Meeting Information 1. Date June 19, 2008 (Thur.) 10:00 a.m. 2. Venue Tower Wing 3rd floor, RIHGA Royal Hotel Osaka 3-68, Nakanoshima 5-chome, Kita-ku, Osaka, Japan 3. Purposes of the meeting

Matters to be reported 1. The Business Report, Consolidated Financial Statements and Financial Statements

for the 85th Period (from April 1, 2007 to March 31, 2008) 2. The Independent Auditors’ Report and Audit Report of the Board of Corporate

Auditors for the 85th Period Matters to be voted upon

Proposal No. 1 Election of ten (10) Directors

Proposal No. 2 Election of three (3) Corporate Auditors

The business report, consolidated financial statements, financial statements and certified copies of the independent auditors’ reports and Audit Report of the Board of Corporate Auditors are included in the appended Reports for the 85th Period.

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Exercising voting rights (Exercising voting rights by mail) Shareholders are requested to vote on the proposals using the enclosed proxy card and ballot, and return it to us so that it arrives no later than 6:00 p.m. (Japan time) on 18 June, 2008 (Wednesday). (Exercising voting rights electronically)

[Exercising voting rights via the Internet] Shareholders are requested to follow the instructions on page 10 and vote on the proposals by 6:00 p.m. (Japan Time) on 18 June, 2008 (Wednesday). If you vote multiple times, the final vote will be deemed to be valid.

If a vote is duplicated by being exercised both via mail and the Internet, the vote received via the Internet shall be deemed to be valid.

[Electronic voting platforms]

Custodian trust banks and other nominee shareholders (including Standing Proxies) who have applied in advance to use the voting platform operated by Investor Communications Japan Inc. (a joint-venture company established by the Tokyo Stock Exchange Inc. and others) may use this platform rather than voting via the Internet, to exercise their vote electronically.

Shareholders attending the meeting are requested to hand in the enclosed proxy card and ballot to the reception desk at the meeting venue.

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Reference documents for the General Shareholders’ Meeting The proposals and reference materials Proposal No. 1: Election of ten (10) Directors The terms of all ten (10) Directors will expire as of the conclusion of this Annual General Shareholders’ Meeting. The Shareholders are requested to elect ten (10) Directors to fill these vacancies.

The Director candidates are listed below. Name (Date of birth)

Personal history, positions, responsibilities and directorship in other companies and organizations

Ownership ofSMI shares

1 Hiroshi Shimozuma (Jan. 13, 1937)

Apr. 1960Jun. 1989Jun. 1992Jun. 1994Jun. 1996Jun. 1999Jun. 2000Jun. 2005to present

Entered SMI Director Managing Director Senior Managing Director Executive Vice President Director, Executive Vice President Director, President Director, Chairman of the Board of Directors

437,907

Directorship in other companies and organizations: Chairman of the Kansai Economic Federation, Chairman of Keihanna Interaction Plaza Incorporated

2 Hiroshi Tomono (Jul. 13, 1945)

Apr. 1971Jun. 1998Jun. 1999Apr. 2003Jun. 2003Apr. 2005Jun. 2005to present

Entered SMI Director Managing Executive Officer Senior Managing Executive Officer Director, Senior Managing Executive Officer Director, Executive Vice President Director, President

140,664

Directorship in other companies and organizations: Chairman of the Iron & Steel Institute of Japan

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Name (Date of birth)



3 Tsutomu Ando (Mar. 31, 1945)

Apr. 1968Jun. 1998

Jun. 1999

Jun. 2001

Apr. 2002

Apr. 2003

Jun. 2003 Apr. 2005

Apr. 2007Jun. 2007 to present

Entered SMI Director, General Manager of Tubular Products Division Managing Executive Officer, General Manager of Tubular Products Division Managing Executive Officer, General Manager of Speciality Tubular Products Division Senior Managing Executive Officer, President of Pipe & Tube Company, General Manager of Wakayama Steel Works Senior Managing Executive Officer, President of Pipe & Tube Company Director, Senior Managing Executive Officer, President of Pipe & Tube Company Director, Executive Vice President, President of Pipe & Tube Company Director, Executive Vice President Director, Executive Vice President, General Manager of Osaka Head Office

156,370

Responsibilities: Steel Sales & Production Administration and Project Development Departments, Domestic and Overseas Offices, Sales of all Internal Companies, General Manager of Osaka Head Office

4 Fumio Hombe (Nov. 29, 1946)

Apr. 1970Jun. 2001Apr. 2003Jun. 2003Jun. 2005to present

Entered SMI Managing Executive Officer Senior Managing Executive Officer Director, Senior Managing Executive Officer Director, Executive Vice President

143,598

Responsibilities: Corporate Planning, Internal Auditing, Treasury, Public Relations & Investor Relations, General Affairs, Legal, Personnel & Industrial Relations and Safety & Health Departments, Internal Control Project Team

Directorship in other companies and organizations: President of East Asia United Steel Corporation

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5 Yasuyuki Tozaki (Jul. 25, 1946)

Apr. 1971Oct. 1999

Jun. 2001

Apr. 2003

Apr. 2005Jun. 2005to present

Entered SMI Managing Executive Officer, General Manager of Corporate Research & Development Laboratories Managing Executive Officer, General Manager of Corporate Research & Development Laboratories, General Manager of Center of Application Technology for Customers Senior Managing Executive Officer, General Manager of Corporate Research & Development Laboratories, General Manager of Center of Application Technology for Customers Executive Vice President Director, Executive Vice President

110,762

Responsibilities: Environment, Technology & Quality Administration, Blast Furnace Project and Intellectual Property Departments, Corporate Research & Development Laboratories, Center of Application Technology for Customers, Technology of all Internal Companies

6 Yasuo Imai (Oct. 22, 1948)

Jul. 1971

Jul. 2002

Jul. 2003Jun. 2004Jul. 2004

Jul. 2006

Apr. 2007 Jun. 2007

Apr. 2008 to present

Entered Ministry of International Trade and Industry (MITI) Director - General of Manufacturing Industries Bureau, MITI Commissioner of Japan Patent Office Retired from MITI Adviser of Japan Industrial Policy Research Institute (JIPRI) Senior Managing Executive Officer, Executive Vice President of Pipe & Tube Company, SMI Senior Managing Executive Officer, President of Pipe & Tube Company, SMI Director, Senior Managing Executive Officer, President of Pipe & Tube Company, SMI Director, Executive Vice President, President of Pipe & Tube Company, SMI

72,260

Responsibilities: Pipe & Tube Company

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7 Syuichiro Kozuka (Nov. 13, 1948)

Apr. 1972Apr. 2002

Oct. 2002

Apr. 2003Jun. 2005Apr. 2006to present

Entered SMI Managing Executive Officer, General Manager of General Affairs Department, General Manager of Personnel & Industrial Relations Department Managing Executive Officer, General Manager of General Affairs Department Managing Executive Officer Director, Managing Executive Officer Director, Senior Managing Executive Officer

80,029

Responsibilities: General Affairs, Legal, Personnel & Industrial Relations and Safety & Health Departments

8 Yoshinari Ishizuka (Jan. 21, 1949)

Apr. 1972Apr. 2003

Jun. 2005Apr. 2006 Apr. 2007to present

Entered SMI Managing Executive Officer, General Manager of Corporate Planning Department, General Manager of Wakayama CTR Project Team Director, Managing Executive Officer Director, Senior Managing Executive Officer, General Manager of Treasury Department Director, Senior Managing Executive Officer

78,631

Responsibilities: Internal Control Project Team, Treasury and Public Relations & Investor Relations Departments

Directorship in other companies and organizations: President of Sumikin Financial Service Co., Ltd.

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9 Kouji Morita (Jan. 6, 1947)

Apr. 1971Jun. 1997

Jan. 1999

Sept. 2001

Jun. 2006

Apr. 2007 Jun. 2007 Apr. 2008 to present

Entered SMI Assistant General Manager of Kansai Steel Division, SMI Managing Director of Sumitomo Metal (SMI) Electronics Devices Inc. President of Sumitomo Metal (SMI) Electronics Devices Inc. Senior Managing Executive Officer, Executive Vice President of Railway, Automotive & Machinery Parts Company, SMI Senior Managing Executive Officer, President of Railway, Automotive & Machinery Parts Company, SMI Director, Senior Managing Executive Officer, President of Railway, Automotive & Machinery Parts Company, SMI Director, Senior Managing Executive Officer, President of Railway, Automotive & Machinery Parts Company, SMI, Assistant General Manager of Titanium Division

26,206

Responsibilities: Railway, Automotive & Machinery Parts Company

Directorship in other companies and organizations: Chairman of Huizhou Sumikin Forging Co., Ltd., President of SMI Crankshaft Management, Inc., President of SMI Retarder Management, GmbH

10 Ichiro Miyasaka (Nov. 10, 1948)

Apr. 1972Apr. 2002Apr. 2005

Apr. 2006

Apr. 2008to present

Entered SMI Managing Executive Officer Managing Executive Officer, General Manager of Nagoya Sales Office Senior Managing Executive Officer, General Manager of Nagoya Sales Office Senior Managing Executive Officer

62,186

Responsibilities: Automotive Steel Sheet Sales, Steel Sheet Sales and Osaka Steel Sheet Sales Departments

Directorship in other companies and organizations: President of SSC CO., LTD., President of SSC Kyushu CO., LTD.

Notes: 1. There are no special relationships between the candidates and SMI. 2. On June 1999, SMI introduced an executive officer system.

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Proposal No. 2: Election of three (3) Corporate Auditors As of the conclusion of this Annual General Shareholders’ Meeting, Corporate Auditor Kunihiko Suemitsu will resign, and the terms of office of both Shigeru Sakurai and Eiji Asada as Corporate Auditors will expire. This proposal calls on the Shareholders to elect three (3) Corporate Auditors, and has the approval of the Board of Corporate Auditors.

The Corporate Auditor candidates are listed below. The Corporate Auditor candidate Eiji Asada is an Outside Corporate Auditor

candidate as stipulated in Article 2, Paragraph 3, Item 8 of the Enforcement Regulations of the Company Act.




1 Shigeru Sakurai (Mar. 2, 1948)

Apr. 1970Jun. 1996Jun. 1999Oct. 1999Apr. 2002Jun. 2002to present

Entered SMI General Manager of Legal Department General Manager of General Affairs Department General Manager of General Affairs Department General Affairs Department Standing Corporate Auditor (full-time)

68,379

2 Kitaro Yoshida (Jan. 16, 1949)

Jul. 1971Aug. 1999

Apr. 2000

Apr. 2002Apr. 2008to present

Entered SMI Assistant General Manager of Kokura Steel Works, SMI Director, General Manager of Business Division, Sumitomo Metals (Kokura), Ltd. President of Sumitomo Metals (Kokura), Ltd. Internal Auditing Department, SMI

20,000

3 Eiji Asada (Jan. 29, 1939)

Jun. 1964Oct. 1970Jun. 1972 Jan. 1975May. 1982 Jun. 1999

Jun. 2001 May. 2004 Jun. 2004Jul. 2004to present

Entered Price, Waterhouse & Co. Registered as a Certified Public Accountant Entered Tohmatsu Awoki & Co. (now Deloitte Touche Tohmatsu) Partner of Deloitte Touche Tohmatsu Representative Partner of Deloitte Touche Tohmatsu Senior Executive partner, Office Representative Partner (Tokyo) of Deloitte Touche Tohmatsu Representative Partner, Chairman of Deloitte Touche Tohmatsu Representative Partner of Deloitte Touche Tohmatsu Retired from Deloitte Touche Tohmatsu Corporate Auditor, SMI

11,499

Notes: 1. There are no special relationships between the candidates and SMI. 2. Information concerning Outside Corporate Auditor candidate Eiji Asada is as follows. a. The candidate has met the Company’s expectations as a certified public accountant conversant with

Japanese corporate accounting issues in his capacity as an Outside Corporate Auditor in the three years and eleven months since his appointment as a Corporate Auditor to SMI in July 2004. The Company believes that if reelected, the candidate will continue to perform his duties as a Corporate Auditor in an appropriate manner.

b. In the past, the candidate has not participated in company business apart from his role as an Outside Director or Outside Corporate Auditor, and the Company believes that the candidate, for the reasons given in a. above, will perform his duties as a Corporate Auditor in an appropriate manner.

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c. In November 2005 the Fair Trade Commission of Japan concluded that the Company’s participation in the bidding for steel bridge construction projects had violated the Antimonopoly Act. In December 2007, the Commission issued a Surcharge Payment Order to the Company for violation of the Antimonopoly Act in participation in bidding for medium-pressure gas pipe related works ordered by Osaka Gas Co., Ltd. Furthermore, since July 2007, the Commission investigated the Company on suspicion of violating the Antimonopoly Act in relation to the sales of sheet piles and steel pipe piles. In June 2008, the Commission found that the Company violated certain provisions of the Act. We are not subject to any penalty fines nor any administrative sanctions. From his position as an Outside Corporate Auditor, the candidate is proposing ways to improve systems that will ensure that the Company strictly abides by the Antimonopoly Act, and is working to ensure that the business activities of the Company’s directors and employees comply with the requirements of laws and regulations.

d. The candidate has been an Outside Corporate Auditor of Fudo Construction Co., Ltd. (presently Fudo Tetra Corporation) since June 2005. In March 2006, former employees of Fudo Construction Co., Ltd. were found guilty of collusion in connection with the work ordered by the Tokyo Metropolitan Government. In June 2007 the Commission issued a Cease and Desist Order and a Surcharge Order to the company for violation of the Antimonopoly Act concerning specific civil engineering and construction projects ordered by the Defense Facilities Administration Agency. In August 2007 the Commission concluded that the company’s participation in bidding for construction projects ordered by Niigata City had violated the Antimonopoly Act. In response, the candidate is proposing ways to improve compliance systems within Fudo Tetra Corporation to prevent reoccurrence.

-End-

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Directions for voting via the Internet 1. Access the Company’s voting site (http://www.webdk.net). Follow the instructions on the

screen and enter the voting code and password (that you received with your proxy card and ballot) then exercise your vote. Other than using a personal computer, you may access the site via mobile phone and vote (provided that your mobile phone is capable of supporting 128-bit SSL encryption).

2. The voting code and password (including a modification to the password by the shareholder) are valid for this General Shareholders’ Meeting. The password is important information that verifies the identity of the shareholder; please take good care of your password until the end of the Shareholders’ Meeting.

3. The shareholder will bear the cost imposed by the service provider for any connection fees to access the voting site as well as any telecommunications costs imposed by telecommunication service providers.

4. Any personal computer to be used in voting must have Internet browsing software Microsoft® Internet Explorer 5.5 SP2 or later versions, or Netscape 6.2 or later versions installed.

(Note) Microsoft is a trademark of U.S. Microsoft Corporation, registered in the U.S. and

worldwide. Netscape is a trademark of Netscape Corporation, registered in the U.S. and worldwide.

If there are any matters that require these Reference Documents for the General Shareholders’ Meeting or the attached Business Report, Consolidated Financial Statements and Financial Statements to be revised up until the day before the General Shareholders’ Meeting, then revisions will be published on the Company’s homepage (http://www.sumitomometals.co.jp/).

For enquiries concerning how to vote via the Internet, please contact the Stock Transfer Agency Department, The Sumitomo Trust and Banking Co., Ltd. (The Company’s Registrar of Shareholders) Service available 24 hours per day on 0120-186-417

(Appendix to Notice of the Annual General Shareholders’ Meeting for the 85th Period)

Report of the 85th Period (from April 1, 2007 to March 31, 2008)

Business Report

Consolidated Financial Statements - Consolidated Balance Sheet

- Consolidated Statement of Income

- Consolidated Statement of Changes in Net Assets

(Reference)

Summary of the Consolidated Statement of Cash Flows

Summary of Segment Information

Financial Statements - Balance Sheet

- Statement of Income

- Statement of Changes in Net Assets

Independent Auditors’ Report for the Consolidated Financial

Statements (certified copy)

Independent Auditors’ Report (certified copy)

Audit Report of the Board of Corporate Auditors (certified copy)

Sumitomo Metal Industries, Ltd.

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Business Report (from April 1, 2007 to March 31, 2008) 1. Business overview of the SMI Group (1) Business results for the fiscal year ended March 31, 2008

1) Business environment in the 85th period ended March 31, 2008 During the reporting period, domestic and international demand for steel was firm. Demand for steel products in the automotive and energy sectors - where the Sumitomo Metals Group is focusing its efforts - was favourable in markets globally. Given these conditions, Group production has continued at high levels, despite a decline in domestic demand for steel products used in construction sector, due to the revision of the Building Standards Law.

Raw material costs have escalated drastically due to price increases for shipping freight, non-ferrous metals and other inputs. In the fourth quarter there were unforeseen events which had a considerable influence on coal prices, such as the flooding of some Australian coal mines by heavy rain which limited the supply of coal. 2) Sumitomo Metals Group business The Group conducted business in line with the Medium-Term Business Plan (FY2006 to FY2008) announced in April 2006. The fundamental policy of the Plan is to maximize corporate value through continuous growth in which there is a balance between quality and scale.

Our Group’s greatest strength has been its ability to supply the solutions and distinctive products its customers want to be manufactured by Sumitomo Metals.

The current reporting period is the second year of the 3-year Medium-Term Business Plan announced in April 2006, and business results have progressed steadily. As shown in Tables 1 and 2 below, recurring profit was 29.4 billion yen less than the same period in the previous year, which includes the increase in depreciation of approximately 16.0 billion yen as a result of a tax reform, 9.0 billion yen arising from a tax effect by its affiliated company, SUMCO Corporation, in FY2006, as well as 5.0 billion yen impact resulted from a replacement of blast furnace. Excluding these impacts of regulatory and governmental changes as well as temporary factors, we have achieved almost the same level of profit as in the previous period. Table 1. Consolidated business results

(billion yen) Increase/(decrease) FY2006 FY2007

Amount Percentage Net sales 1,602.7 1,744.5 141.8 8.9% Operating profit 303.7 274.3 (29.3) (9.7%) Recurring profit 327.6 298.2 (29.4) (9.0%) Net income 226.7 180.5 (46.1) (20.4%)

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Table 2. Segment performance in the reporting period (billion yen)

Net sales (*) Increase/(decrease)

Operating profit

(*) Increase/(decrease)

Steel 1,622.3 9.0% 269.0 (9.7%) Pipe & Tube Company 674.5 10.3% Steel Sheet, Plate & Structural Steel

Company 629.1 9.2%

Railway Automotive & Machinery Parts Company

103.0 2.3%

Sumitomo Metals (Kokura), Ltd. 154.5 6.6% Sumitomo Metals (Naoetsu), Ltd. 28.9 15.9% Other 32.2 6.8% Engineering 15.3 42.7% 0.1 - Electronics 61.6 3.8% (0.2) - Other 45.1 3.4% 5.8 4.8% Corporate or eliminations - - (0.3) - Total 1,744.5 8.9% 274.3 (9.7%)

Note: (*) Percentage compared with the previous period.

3) Reporting period management projects The Sumitomo Metals Group has been conducting its business with the objectives of accelerating the distinctiveness between itself and its competitors, and achieving continuous growth with a balance between quality and scale. At Kashima Steel Works, the new No. 3 Blast Furnace began operations in May 2007. We decided to make an investment in Wakayama Steel Works to boost annual production capacity to 5 million tons of crude steel. Our Group’s crude steel production in FY2012 after the completion of investments in Wakayama Steel Works is expected to exceed 15 million tons per year - up more than 1 million tons from our production capacity in FY2007.

The Pipe & Tube Company is aiming to further enhance its presence as one of the

world’s most competitive pipe and tube manufacturers. In the reporting period, construction began at an integrated seamless pipe manufacturing joint venture project with Vallourec Group. At Kashima Steel Works, construction is underway to increase the capacity to produce ultra-high-strength large-diameter welded steel pipe. The Steel Tube Works in Amagasaki boosted its capacity to produce Super High-end boiler tubes for boilers that will have high energy efficiency that will help keep CO2 emission at a low level.

In the reporting period, the Steel Sheet, Plate & Structural Steel Company

collaborated with its business partners to expand its steel sheet business in the growing foreign market. The Company decided to participate in an integrated steel works construction project of Bhushan Steel Limited in India, and agreed to provide technical assistances to its Indian partner. In Vietnam, the Company has been working with China Steel Corporation of Taiwan to promote a steel sheet manufacturing and selling business, which is scheduled to begin operation in 2011. At Kashima Steel Works in Japan, a new pickling line, in addition to the continuous galvanizing line, was completed and started operation to create a manufacturing system for high-grade steel sheet for automotive use. Investment in the plate mill of Kashima Steel Works to expand capacity to produce high-end steel plate for the energy development sector was also completed.

At the Railway, Automotive & Machinery Parts Company, the Osaka Steel Works

completed an investment project designed to expand its capacity to produce railway wheels by 20 percent to 240 thousand units per annum, and began operations in April, to meet increased demand led by the North American market. Forged crankshaft are critical automotive engine components, and the Company is promoting its “Global 10” strategy that aims to achieve a 10% share of the global market for forged crankshafts, by running three

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manufacturing hubs located in Japan (Osaka), United States (Kentucky) and China (Guangdong). In China, the No.2 forging press line started operation in November 2007. In the United States, the No.3 forging press line is under construction, and is scheduled to start operation in January 2009.

Sumitomo Metals (Kokura), Ltd., our Group’s manufacturer of specialty steel bars

and wire rods, is currently implementing a project to introduce new equipment that includes a refining furnace and continuous casting mill, to innovate its steel-making process to accelerate its distinctiveness from its competitors.

Our engineering business, and electronics business and other entities focused their

resources on their core competencies, to enhance their corporate value.

Table 3 below summarizes these major business projects.

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Table 3. Major business projects in the reporting period (billion yen)

Segment Target Detail Investment Amount

Timeline

Enable annual capacity of 8 million tons at Kashima Steel Works

Renovation of No.3 Blast Furnace (volume expansion)

29.0 Started operation in May, 2007

1st step: Construction of new No.1 Blast Furnace, etc.

118.0 Scheduled to begin operation in June, 2009 Iron &

Steel- making process

Enable annual capacity of 5 million tons at Wakayama Steel Works

2nd step: Construction of new No.2 Blast Furnace, Reinforcement of steel making facilities, etc.

90.0 Scheduled to begin operation in Oct., 2012

Expand production capacity of super high-end boiler tubes

Introduction of new pipe-production mill and others facilities

6.5 Started operation in Oct., 2007

Expand production capacity of super high-end seamless pipe products

Capacity improvement of new pipe-production mill and secondary line

35.0 Scheduled to begin operation in July, 2008

Establish a manufacturing hub for seamless pipe in Brazil

Establishment of a joint venture with Vallourec Group for integrated seamless pipe mill

(*) 200.0 Scheduled to begin operation in 2010

Pipe & Tube

Expand production capacity of ultra-high-strength line pipes

Equipment improve at the plate mill and large-diameter (UOE) pipe mill

10.0 Scheduled to begin operation in Mar., 2011

Establish a manufacturing system of high-grade steel sheet for automotive use

Introduction of new continuous galvanizing line and pickling line

26.0 Started operation in Sept., 2007

Enable 2-million-ton annual capacity of high-end steel plate

Renovation of heat furnace and cut-off line (end-shear)

7.0 Started operation in Nov., 2007

Strengthen relationship with a partner in the steel sheet sector in India

Participation in an integrated steel works project of Bhushan Steel Limited in India

(Technical Assistance)

-

Steel Sheet Plate & Structural Steel

Establish manufacturing hub of steel sheet in Vietnam

Establishment of a steel sheet manufacturing joint venture with China Steel Corporation

(*) 100.0 Scheduled to begin operation in 2011

Expand forged crankshaft business in China.

Introduction of a 2nd forging line at Huizhou Sumikin Forging Co., Ltd.

3.0 Started operation in Nov., 2007

Expand capacity to produce railway wheels

Renovation of heat treatment furnace (Increase in production capacity from 200 thousand to 240 thousand units per year)

2.0 Started operation in April, 2008

Railway, Automotive & Machinery Parts

Expand forged crankshaft business in North America

Introduction of 3rd forging line at International Crankshaft Inc.

4.5 Scheduled to begin operation in Jan., 2009

Other

Achieve steel-making process innovation at Sumitomo Metals (Kokura), Ltd.

Introduction of new refining furnace, continuous casting mill and other facilities

23.0 Scheduled to begin operation in Mar., 2010

Note: (*) Total Investment by joint venture

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In the reporting period our Group strengthened its alliances with its business partners. We increased the amount of cross-shareholdings with Nippon Steel Corporation and Kobe Steel Ltd to deepen and expand a range of cooperative relationships. We are working closely with Sumitomo Corporation to implement an integrated steel plant to manufacture seamless pipe at Brazil, which is scheduled for completion in 2010. In line with this development, we increased the cross-shareholding arrangement with Sumitomo Corporation to deepen the cooperative relationship between our two companies in sales and raw-material procurement.

To raise the level of corporate value of the Sumitomo Metals Group, we need to

enhance our “intangible assets” in addition to improving the competitiveness of our steel works and our financial state. Examples of these intangible assets are the Sumitomo business philosophy: “Steadiness and reliability are of the greatest importance”; our own technology that we believe is highly differentiated from our competitors; our relationships of trust built up through business with our customers; and the pride and commitment of our employees to their work.

Our reputation in the minds of our customers and the trust that they place in us are

some of our Group’s most valuable assets. In the reporting period, Shell Exploration & Production Asia Pacific named us as their “Supplier of the Year” on account of the quality of our seamless pipes.

As a manufacturer, technical development is a core issue in our management.

Based on our Group’s technical development policy that places great importance on the development of utility technology that aims to increase our value in our customers’ eyes, we have carefully selected the fields to which we devote our resources, and have actively collaborated with industry, government and academia.

Our technical achievements have been recognized outside our industry. For example, we won “the Prime Minister’s Prize at the second Monodzukuri Nippon Grand Awards” for our method of manufacturing high-quality steel plates for structural uses by utilizing nano-sized fine particles.

In December 2007 the Fair Trade Commission issued a Surcharge Payment Order to

the Company for violation of the Antimonopoly Act in participation in bidding for medium-pressure gas pipe related works ordered by Osaka Gas Co., Ltd. Furthermore, since July 2007, the Commission investigated the Company on suspicion of violating the Antimonopoly Act in relation to the sales of sheet piles and steel pipe piles. In June 2008, the Commission found that the Company violated certain provisions of the Act. We are not subject to any penalty fines nor any administrative sanctions.

The Company is working to strengthen systems to ensure that the Antimonopoly Act is strictly observed, and will further increase levels of compliance.

4) Approaches to investment, fund procurement and the return of profits to

shareholders The Sumitomo Metals Group intends to maximize its corporate value through sustainable growth with the optimum balance between quality and scale.

Cash generated by our business will be used in investments aimed to increase corporate value. Our investment strategy calls for investment to help accelerate distinctiveness and bring cash returns in excess of the cost of capital to contribute to our corporate value. We then pass on the appropriate amount of returns to our shareholders. Our dividends are generally paid under a stable dividend policy. In terms of our financial portfolio, we are aiming to maintain a D/E ratio of 1.0 or less.

In the reporting period, Group investment in plant and equipment totaled 178.8 billion yen, of which 171.7 billion yen was invested in Steel, 3.6 billion yen in Electronics and 3.4 billion yen in other business sectors. As a result of the cash demand for this and other investment, outstanding debt as of the end of the reporting period was 883.3 billion yen

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with an increase of 165.9 billion yen from the previous period. We expect to make a year-end dividend of 5 yen per share, bringing the total cash

dividend for the full fiscal year, including the earlier interim dividend payment, to 10 yen per share.

(*) D/E ratio = Debt Equity Ratio (debt / shareholder’s equity)

(2) Issues facing the SMI Group A major issue for FY2008 will be the unprecedented surge in raw material prices. Compared to the current reporting period, the average cost of our products is expected to rise by more than 30,000 yen per ton. Our Company is making every effort to reduce costs, including the establishment of the Cost Reducing Team at the end of March 2008. Nevertheless, the current round of increase in raw materials cost cannot be fully off-set by internal efforts and we will have to obtain better pricing for our products while we seek kind understandings from our customers.

The global environment is also a crucial issue. The contributions that we make to protect the global environment are directly linked to the growth in the value of the Sumitomo Metals Group. Among the world’s blast furnace steel makers, our Group’s CO2 emission per ton of steel is at one of the lowest levels. In addition to reducing the amount of CO2 generated during the manufacturing process, it is also important to contribute to emission reductions through our products that enable the manufacture of lighter cars and the development of energy sources that will place lower burdens on the environment. At our Brazilian blast furnace-integrated seamless steel pipe plant, we are planning to build a blast furnace that will be fired with charcoal that enables us to greatly control CO2 emission. Going forward, we will continue to contribute to society through management that gives careful consideration to the global environment, thereby making efforts to enhance our corporate value.

The Sumitomo Metals Group, adhering to the Sumitomo business philosophy which has been refined over 400 years and epitomized by the words “Steadiness and reliability are of the greatest importance,” and over a century of Sumitomo Metals’ manufacturing history, is making efforts to build a corporate structure that can ensure steady, high levels of profit, and maximize corporate value through continuous growth. Based on this approach, the Sumitomo Metals Group will seek to become a company trusted by its shareholders and all stakeholders alike.

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(3) Trends in business results, and assets and liabilities of SMI Group and the Company in the reporting period and the previous three fiscal years

1) Business results and assets and liabilities of SMI Group

Summary FY2004 ended

March 31, 2005

FY2005 ended

March 31, 2006

FY2006 ended

March 31, 2007

Reporting period(FY2007 endedMarch 31, 2008)

Steel Engineering Electronics Other

yen bil.1,085.7

57.149.044.8

yen bil.1,405.4

39.060.847.4

yen bil. 1,488.8

10.7 59.3 43.6

yen bil.1,622.3

15.361.645.1

Sales

Total 1,236.9 1,552.7 1,602.7 1,744.5Recurring profit Net income Net income per share Total assets Net assets

173.2110.8

23.05 yen1,923.1

483.2

280.7221.2

46.03 yen2,113.3

720.8

327.6 226.7

47.89 yen 2,301.5

924.7

298.2180.5

39.43 yen2,418.3

949.3

Note: “Net income per share” is calculated based on the average number of outstanding shares throughout the fiscal year. The number of shares outstanding excludes treasury stock.

2) Business results and assets and liabilities of the Company

Summary FY2004 ended

March 31, 2005

FY2005 ended

March 31, 2006

FY2006 ended

March 31, 2007

Reporting period(FY2007 ended

March 31, 2008)Production volume

mil. tons Crude steel 7.51 7.78

7.86 7.92

Sales volume

mil. tons Steel materials 9.33 8.98

9.00 9.03

Sales (yen bil.)

Steel Engineering

716.955.8

916.438.4

1,020.6 10.7

1,126.015.3

Total 772.8 954.9 1,031.4 1,141.4 Exports 282.9 402.6 477.2 513.4Recurring profit (yen bil.) Net income (yen bil.) Net income per share Total assets (yen bil.) Net assets (yen bil.)

110.771.6

14.90 yen1,457.8

482.4

194.5129.7

26.97 yen1,656.5

625.7

240.6 139.2

29.41 yen 1,873.7

690.8

214.9129.3

28.25 yen1,940.6

672.9

Note: “Net income per share” is calculated based on the average number of outstanding shares throughout the fiscal year. The number of shares outstanding excludes treasury stock.

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(4) Main businesses of SMI Group (as of March 31, 2008) Main business areas

Steel sheets and plates

Steel plates for structural uses, steel plates for low-temperature service, steel plates for line pipe, high-tensile-strength steel plates and sheets, hot strip, cold strip, electro-magnetic steel sheets, hot-dip galvanized steel sheets, electrolytic galvanized steel sheets, pre-painted steel sheets, pre-coated steel sheets, stainless steel precision rolled strips, Pure Nickel, etc.

Construction materials

H-shapes, fixed outer dimension H-shapes, lightweight welded beams, sheet piles, steel pipe piles, etc.

Steel tubes and pipe Seamless steel tubes and pipes, electric resistance welded tubes and pipes, large-diameter arc-welded pipes, hot ERW, specially shaped tubes, various coated tubes and pipes, stainless steel tubes and pipes, etc.

Steel bars and wire rods

Special quality bars, cold heading quality wire rods, spring quality bars, machining steel, bearing steel, stainless bars and wire rods, etc.

Railway, automotive, and machinery parts

Wheels, axles, bogie trucks, gear units for electric cars, couplers, etc.

Steel castings and forgings

Die forged crankshafts, materials for molds, aluminum wheels, flange for transmission tower, crane wheels, rolls, etc.

Semi-finished iron products

Steel billets, pig iron for steel making, etc.

Steel

Others Titanium products, steel making technology, electricity supply, land and sea transport of steel materials, maintenance of machinery and facilities, pipelines, thermal plant and pipeline engineering, sale of limestone, etc.

Engineering Steel bridge, steel structure for civil engineering, etc. Electronics IC packages, electronic modules, etc. Others Lease and sale of real estate, research and testing specializing in materials

analysis and evaluation, etc.

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(5) Principal offices of SMI Group (as of March 31, 2008) Names

Head offices

Osaka (registered head office), Tokyo

Domestic works Steel Sheet, Plate & Structural Steel Company Kashima Steel Works (Kashima), Pipe & Tube Company Wakayama Steel Works (Wakayama and Kainan),

Steel Tube Works (Amagasaki) Railway Automotive & Machinery Parts Company

Osaka Steel Works (Osaka) Domestic offices Branch offices

Kyushu (Fukuoka), Chugoku (Hiroshima), Shikoku (Takamatsu), Nagoya, Hokuriku (Toyama), Niigata, Kitakanto (Mito), Tohoku (Sendai), Hokkaido (Sapporo)

Sales offices Kagoshima, Okinawa (Naha), Wakayama, Hamamatsu, Shizuoka, Aomori

Overseas offices Chicago, Houston, ASEAN (Bangkok, Singapore), Shanghai, Guangzhou

SMI

Laboratories Corporate Research & Development Laboratories (Amagasaki and Kamisu) Center of Application Technology for Customers (Amagasaki)

Domestic works Sumitomo Metals (Kokura), Ltd. (Kitakyushu) Sumikin Iron & Steel Corporation (Wakayama) Sumitomo Metals (Naoetsu), Ltd. (Joetsu) Sumitomo Pipe & Tube Co., Ltd. (Kashima, etc.) Sumikin Steel & Shapes, Inc. (Wakayama, etc.) Sumitomo Metal (SMI) Electronics Devices Inc. (Mine)

Consolidated subsidiaries

Overseas works Western Tube & Conduit Corp. (United States) Seymour Tubing, Inc. (United States) International Crankshaft Inc. (United States) Huizhou Sumikin Forging Co., Ltd. (China)

(6) Employment by SMI Group (as of March 31, 2008) Segment No. of employees Steel Engineering Electronics Others

19,382 130

3,583 1,831

Total 24,926

Notes: 1. The number of employees decreased by 56 compared with the figure at the end of the previous fiscal year. 2. Of this number, 6,950 are SMI employees (excluding personnel on loan to other companies), an increase of

98 compared with the figure at the end of the previous fiscal year.

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(7) Principal subsidiaries 1) Principal consolidated subsidiaries (as of March 31, 2008)

Company name Capital (yen bil.)

Segment Ownership as a % of total issued shares

Main business

Sumitomo Metals (Kokura), Ltd.

27.0 Steel 100.0 Manufacture and sale of steel bars and wire rods

East Asia United Steel Corporation

17.2 Steel 54.6 Holding company of Sumikin Iron & Steel Corporation

Sumikin Iron & Steel Corporation

17.2 Steel * 54.6 Manufacture and sale of semi-finished iron products

Sumitomo Metals (Naoetsu), Ltd.

5.5 Steel 100.0 Manufacture and sale of stainless precision rolling products and stainless shaped products

Sumitomo Pipe & Tube Co., Ltd.

4.8 Steel * 57.1 Manufacture and sale of steel pipes for use as electrical cable conduits, piping, structural members, drawn steel pipe

Sumikin Steel & Shapes, Inc.

3.0 Steel 100.0 Manufacture and sale of steel H-shapes

Sumitomo Metal Logistics Service Co., Ltd.

1.5 Steel * 100.0 Land and sea transport of steel materials, etc. and incidental business

Sumitomo Metal (SMI) Electronics Devices Inc.

3.4 Electronics 100.0 Manufacture and sale of IC packages

Western Tube & Conduit Corp.

$US ,000 17,000

Steel * 96.7 Manufacture and sales of power cable conduits, fence pipes and other welded steel tubes

Seymour Tubing, Inc. $US ,000 10,000

Steel * 80.0 Manufacture and sales of steel tubing for automotive use

International Crankshaft Inc.

$US ,000 22

Steel 80.0 Manufacture and sales of small forged crankshafts for automotive use

Huizhou Sumikin Forging Co., Ltd.

yuan mil. 239

Steel 51.0 Manufacture and sales of small forged crankshafts for automotive use

Note: *: Includes shares held by subsidiaries

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2) Principal companies accounted for using the equity method (as of March 31, 2008) Company name Capital

(yen bil.)

Segment Ownership as a % of total issued shares

Main business

SUMCO Corporation

114.1 Electronics 28.2 Manufacture and sale of semiconductor silicon wafers

Kashima Kyodo Electric Power Co.

22.0 Steel 50.0 Thermal power generation

Kyoei Steel, Ltd. 18.5 Steel 25.8 Manufacture and sale of steel billets, steel bars, shaped steel, flat steel, etc. Processing and sale of steel materials

Daiichi Chuo Kisen Kaisha

13.2 Steel *1 15.1 Marine transport and incidental business

Sumikin Bussan Corporation

12.3 Steel *1 38.2 Sale and export/import of iron and steel products, textiles and foodstuffs, etc.

Nippon Steel & Sumikin Coated Sheet Corporation

11.0 Steel 25.0 Manufacture and sale of coated steel sheets, surface-treated steel sheet, cold-rolled steel sheets and construction materials

Sumitomo Precision Products Co., Ltd.

10.3 Other *1 40.6 Manufacture and sale of aerospace hydraulics, heat exchangers, industrial environmental equipment, etc.

*2 OSAKA Titanium technologies Co., Ltd.

8.7

Steel 23.9

Manufacture and sale of titanium, polycrystalline silicon, processed products of silicon and titanium

Nippon Steel & Sumikin Metal Products Co., Ltd.

5.9 Steel 15.0 Manufacture and sale of construction and civil engineering materials, PVC-coated steel and powder for steel making

Nippon Steel & Sumikin Stainless Steel Corporation

5.0 Steel 20.0 Manufacture and sale of stainless steel

Chuo Denki Kogyo Co., Ltd.

3.6 Steel 29.3 Manufacture and sale of manganese ferroalloys, alloys that absorb and store hydrogen, etc.

Nippon Steel & Sumikin Welding Co., Ltd.

2.1 Steel *1 33.4 Manufacture and sale of welding materials and equipment

*3 Vallourec & Sumitomo Tubos do Brasil Ltda.

real mil. 244

Steel 39.0

Manufacture of seamless pipes

Notes: 1. *1: Includes shares held by subsidiaries 2. *2: OSAKA Titanium technologies Co., Ltd. is the new name of the former Sumitomo Titanium Corporation 3. *3: From this reporting period, Vallourec & Sumitomo Tubos do Brasil Ltda. is listed as a principal company

accounted for using the equity method. (8) Principal SMI Group creditors and loans outstanding (as of March 31, 2008) Name of creditors Loans outstanding

SMI Consolidate subsidiaries Total

(yen. bil.) (yen. bil.) (yen. bil.)Sumitomo Mitsui Banking Corporation 67.2 12.9 80.1 The Sumitomo Trust and Banking Co., Ltd. 64.5 13.5 78.0 Development Bank of Japan 31.7 3.1 34.9 Sumitomo Life Insurance Company 29.5 1.0 30.5 Meiji Yasuda Life Insurance Company 27.0 - 27.0

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2. Stock information (as of March 31, 2008) (1) Number of shares

Number of shares authorized to be issued 10,000,000,000 shares Number of shares issued 4,805,974,238 shares (Number of treasury stock) (166,779,467 shares)

(2) Number of shareholders 287,629 (3) Principal Shareholders

Investment in SMI Name No. of shares owned (thou.)

Ownership as a % of total issued shares

Sumitomo Corporation 458,326 9.88 Nippon Steel Corporation 451,761 9.74 Japan Trustee Services Bank, Ltd. (account in trust) 199,942 4.31 The Master Trust Bank of Japan, Ltd. (account in trust) 155,574 3.35 Kobe Steel, Ltd. 112,565 2.43 Japan Trustee Services Bank, Ltd. 90,315 1.95 Nippon Life Insurance Company 88,920 1.92 Mitsui Sumitomo Insurance Company, Limited 68,206 1.47 The Sumitomo Trust and Banking Co., Ltd. 60,000 1.29 Sumitomo Life Insurance Company 51,504 1.11 Total 1,737,115 37.44

Notes: 1. Ownership as a % of total issued shares is calculated with treasury stock being subtracted from the total number of issued shares.

2. The 90,315 thousand shares registered in the name of Japan Trustee Services Bank, Ltd. (Sumitomo Mitsui Banking Corporation retirement benefit trust account re-entrusted by The Sumitomo Trust and Banking Co., Ltd.) are owned beneficially by Sumitomo Mitsui Banking Corporation and held as a retirement benefit trust by Japan Trustee Services Bank, Ltd. Sumitomo Mitsui Banking Corporation holds the right to direct the voting of these shares.

3. Sumitomo Mitsui Banking Corporation holds 28,090 thousand shares (0.61% of total issued shares) in addition to those described above.

(4) Distribution ownership by shareholder group Group Japanese Financial

institutions Securities companies

Other corporations

Private individuals, etc.

Foreign Total

% ownership 25.8 1.8 31.2 22.4 18.8 100.0

Note: The distribution in the table above is calculated with treasury stock being subtracted from the total number of issued shares.

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3. Directors and Corporate Auditors (1) Names, positions, responsibilities and directorship in other companies and

organizations (as of March 31, 2008) (* denotes a Representative Directors) Position

Name Responsibilities and directorship in other companies and organizations

* Chairman of the Board of Directors

Hiroshi Shimozuma Chairman of the Kansai Economic Federation Chairman of Keihanna Interaction Plaza Incorporated

* Director and President Hiroshi Tomono Chairman of the Iron & Steel Institute of Japan * Director Tsutomu Ando Steel Sales & Production Administration and Project

Development Departments, Domestic and Overseas Offices, Sales of all Internal Companies, General Manager of Osaka Head Office

* Director Fumio Hombe Corporate Planning, Internal Auditing, Treasury, Public Relations & Investor Relations, General Affairs, Legal, Personnel & Industrial Relations and Safety & Health Departments, Internal Control Project Team, President of East Asia United Steel Corporation

Director Yasuyuki Tozaki

Environment, Technology & Quality Administration, Blast Furnace Project and Intellectual Property Departments, Corporate Research & Development Laboratories, Center of Application Technology for Customers, Technology of all Internal Companies

Director Shozo Nishizawa President of Steel Sheet, Plate & Structural Steel Company

Director Syuichiro Kozuka General Affairs, Legal, Personnel & Industrial Relations and Safety & Health Departments

Director Yoshinari Ishizuka Internal Control Project Team, Treasury and Public Relations & Investor Relations Departments, President of Sumikin Financial Service Co., Ltd.

Director Kouji Morita President of Railway, Automotive & Machinery Parts Company, Chairman of Huizhou Sumikin Forging Co., Ltd., President of SMI Crankshaft Management, Inc., President of SMI Retarder Management, GmbH

Director Yasuo Imai

President of Pipe & Tube Company

Standing Corporate Auditor (full-time)

Kunihiko Suemitsu

Standing Corporate Auditor (full-time)

Shigeru Sakurai

Corporate Auditor Shogo Takai

Lawyer

Corporate Auditor Eiji Asada

Certified Public Accountant

Corporate Auditor Keiichi Murakami

Lawyer, Distinguished visiting professor of Doshisha University law School

Notes: 1. Shogo Takai, Eiji Asada and Keiichi Murakami are the outside corporate auditors as stipulated in

Article 2, Paragraph 1, Item 16 of the Companies Act. 2. Corporate auditor Eiji Asada is a Certified Public Accountant, and has considerable knowledge of

finance and accounting.

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(2) Total of fees and other remuneration paid to Directors and Corporate Auditors No. of persons

at the end of the period

Payments in the reporting period

Remarks

Directors

10

(yen mil.)705

Corporate Auditors

5

147

Total (Outside Corporate Auditors)

15

( 3)

852

( 41)

The shareholders’ meeting adopted a resolution to limit directors’ fees to 80 million yen per month for Directors and 15 million yen per month for Corporate Auditors.

(3) An Outside Corporate Auditors to two companies Outside Corporate Auditor Eiji Asada is an outside corporate auditor of Fudo Tetra Corporation. (4) Principal activities of Outside Corporate Auditors in the reporting period Each Outside Corporate Auditor attends meetings of the Board of Directors, receives reports from the Directors on the business operations, checks the Board’s decision-making process and details, and gives opinions to the Board as necessary. The Outside Corporate Auditors hold regular meetings with Representative Directors, Directors of accounting and Independent Auditors, and conduct inspections and other auditing activities in the offices of the Company and its affiliates. The Board of Corporate Auditors receives necessary reports from the Standing Corporate Auditors, Directors, employees and Independent Auditors and exchanges opinions amongst its members. The Board of Corporate Auditors checks and reviews the state of the Company’s internal control systems as well as the appropriateness of the audits conducted by the Independent Auditors, to make sure that the Company has adequate auditing functions required by the Companies Act. In the reporting period, there were 19 Board of Directors meetings and 32 Board of Corporate Auditors meetings. Attendance of each the Outside Corporate Auditors is as follows:

Attendance Name Board of Directors’ meeting Board of Corporate Auditors’

meeting Shogo Takai 19 meetings 31 meetings Eiji Asada 18 meetings 31 meetings Keiichi Murakami 18 meetings 32 meetings

In December 2007 the Fair Trade Commission issued a Surcharge Payment Order to the Company for violation of the Antimonopoly Act, for participation in bidding for medium-pressure gas pipe related works ordered by Osaka Gas Co., Ltd. most recently between April 2003 and September 2005. Furthermore, since July 2007, the Commission investigated the Company on suspicion of violating the Antimonopoly Act in relation to the sales of sheet piles and steel pipe piles. In June 2008, the Commission found that the Company violated certain provisions of the Act. We are not subject to any penalty fines nor any administrative sanctions. Each Outside Corporate Auditor, as an Outside Corporate Auditor, is proposing ways to improve systems that aim to ensure that the Company strictly abides by the Antimonopoly Act, and is working to ensure that the business activities of the Company’s directors and employees comply with the requirements of laws and regulations.

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4. Independent Auditors (1) Name of the Auditors

Deloitte Touche Tohmatsu (2) Total fees and other remuneration paid to Independent Auditors

Remarks Amount of payment (a) Total remuneration and other fees

(yen mil.) 72

(b) Total remuneration and other fees to be paid to Independent Auditors by the Company and its subsidiaries

275

Notes: 1. The auditor engagement between the Company and our Independent Auditor does not differentiate

audit remuneration based on the Companies Act from audit remuneration based on the Financial Instruments and Exchange Law, and the two types of remuneration cannot be differentiated; therefore, the agreement amount is shown in the figures above.

2. The Company pays remuneration to the Independent Auditors for their guidance of internal control concerning the financial reporting, suggestions and advice, apart from their duties stipulated in Article 2, Paragraph 1 of the Certified Public Accountants Law.

3. Of the Company’s principal subsidiaries, the accounts (including documents equivalent to these) of Western Tube & Conduit Corp., Seymour Tubing, Inc., International Crankshaft Inc., and Huizhou Sumikin Forging Co., Ltd. are audited (as defined by the provisions by the Companies Act or the Financial Instruments and Exchange Law (or equivalent foreign laws or regulations)) by certified public accountants or auditors (or persons having foreign qualifications equivalent to these) other than the Company’s Independent Auditors.

(3) Policy concerning the decision to dismiss or to not reappoint the Independent

Auditor Article 340 of the Companies Act stipulates that the Board of Corporate Auditors shall be entitled to dismiss the independent auditor for reasons stipulated therein. In addition, when it is recognized that the independent auditor is no longer able to perform its duties appropriately, the Company, subject to the consent of, or request from, the Board of Corporate Auditors, will propose to the Shareholders’ Meeting to dismiss the independent auditor or adopt a decision not to reappoint the independent auditor. 5. A summary of resolutions to put in place systems to ensure that

operations are conducted correctly The Company has decided upon the following basic policies concerning the putting in place of systems to ensure that operations are correctly carried out, and is working to ensure that in accordance with these basic policies, the Company’s operations are lawfully and efficiently conducted, risk management is carried out, and that these systems are improved in response to changes in the business environment and other factors. (1) Systems to ensure that Directors’ performance of duties complies with laws,

regulations and the Company’s Articles of Incorporation, and systems to ensure that these duties are efficiently carried out.

The Company, as a corporate institution based on laws, regulations and its Articles of Incorporation, has in place its Shareholders’ Meetings, Directors, Board of Directors, Corporate Auditors, Board of Corporate Auditors and Independent Auditors, and has established the following systems to ensure that these bodies can perform their duties in an efficient manner. 1) Introduce an “executive officer” system and raise the effectiveness of supervisory

functions and the efficiency of officers’ duties by separating decision-making/supervisory

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functions from management functions. 2) Establish standards for Board of Director discussions, and stipulate what matters are to be

decided upon at meetings of the Board of Directors and what matters need to be reported to the Board of Directors.

3) Have matters of importance to management discussed at the Management Meeting, in accordance with standards for Management Meeting discussions, and then make decisions at a meeting of the Board of Directors.

4) Have the Personnel Committee discuss the selection of Director candidates and other personnel matters and report these to the Board of Directors for decision-making.

The Company has also established Sumitomo Metals’ Corporate Code that sets forth the essential policies for the Company’s business and requires that the duties of Directors strictly comply with laws, regulations and business ethics. (2) Systems for the storage and management of information concerning Directors’

execution of their duties. In accordance with the Company’s regulations, this information should be properly preserved and managed. (3) Regulations and systems concerning crisis management The Crisis Management Committee will be established to enable the Company to make a unified response in a time of emergency following a major disaster, accident or violation of law. Systems will be put in place that will enable a swift and appropriate response to a crisis. The Company is setting up the following systems to prevent or manage risk in ordinary, times. 1) Systems to manage losses, to swiftly respond to changes in the business environment and

put in place regulations concerning significant assets and manage those assets thereunder. 2) Establish a Risk Management Committee, conduct assessment to uncover and examine

risk and set basic policies governing risk management. In accordance with these basic policies, determine the departments that will be responsible for managing specific risks, set down regulations, put systems in place, and conduct effective risk management. Set up an Environment Committee to manage environmental risks, and set up an Information Security Committee to manage information security risks.

3) Systems to ensure the reliability of financial reports. (4) Systems to ensure that employees carry out their duties in compliance with laws,

regulations and the Company’s Articles of Incorporation The Internal Auditing Department will monitor and supervise performance of the duties of executive officers and employees. The Compliance Committee will be set up to prevent violations of law, and the following compliance programs will be put in place. 1) The Sumitomo Metals’ Corporate Code will require employees, executive officers and

Directors to strictly comply with laws, regulations and business ethics. Publish a Compliance Manual which lists the practices that must be followed in the course of duties.

2) Set up a curriculum for training personnel in all aspects of compliance. If necessary, the management of each office may produce manuals and hold training meetings.

3) Set up a Compliance Consultation Office, provide consultations to executive officers and other employees.

(5) Systems to ensure that the Group comprising the Company and its subsidiaries

carries out its duties correctly The following “Group Company Management Systems” will be set up for the management of subsidiaries (excluding listed subsidiaries). 1) The Group Company Management Council will assess the level of achievement of

management targets at principal subsidiaries and discuss the remuneration of the president of each subsidiary.

- 17 -

2) Important decisions taken at each subsidiary will be required to be discussed with and reported to the Company, following a defined standard procedure.

3) Each subsidiary will be required to set up a compliance program based on the Company’s program, adapted to the business and scale of operations of the subsidiary.

4) The Company will receive periodic reports from each subsidiary concerning the management of their operations and their financial circumstances. The Internal Auditing Department will regularly inspect each subsidiary.

The Company will set up basic policies to ensure that the Company correctly conducts business with its subsidiaries, and that minority shareholders will not suffer unfair losses. (6) Systems concerning the personnel to assist Corporate Auditors in their duties With the consent of the Board of Corporate Auditors, a Corporate Auditors’ Office will be set up to assist the Corporate Auditors. The number of such employees and the functions of the Office will be determined with the consent of the Board of Corporate Auditors. (7) Matters concerning the independence of the personnel in (6) above from the

Directors. The personnel to be assigned to the Corporate Auditors’ Office will be determined with the consent of the Board of Corporate Auditors. (8) Systems for Directors or employees to report to the Corporate Auditors and

other systems for reporting to Corporate Auditors In accordance with the Company’s regulations, the following matters will be reported in a prompt and appropriate manner to Corporate Auditors or the Board of Corporate Auditors. 1) Important matters concerning the management of the Company and the SMI Group 2) The Performance of the Company’s Directors’ duties 3) The state of preparation and operation of systems to ensure that Directors and employees

are carrying out their duties in compliance with laws, regulations and the Company’s Articles of Incorporation

4) The state of preparation and operation of systems to ensure that operations within the SMI Group are being correctly carried out

5) The state of establishment and operation of systems to ensure that important matters concerning the preparation of accounts and financial statements are verified and that the accounts and statements are correctly prepared

6) Audits by the Internal Auditing Department 7) Measures taken to respond to the following: matters that may cause considerable losses to

the Company and the SMI Group, actual or suspected unlawful acts by a Director(s); violations of laws, regulations and the Company’s Articles of Incorporation or extremely unfair acts

8) Important public announcements concerning the Company and the SMI Group (9) Other systems to ensure the effectiveness of the audit function of the Corporate

Auditors If deemed necessary, the Corporate Auditors may request the Internal Auditing Department to report the results of their internal audits. If deemed necessary, the Corporate Auditors may call upon lawyers, accountants and other outside specialists to assist them. 6. Basic policy on control over the Company The Company formulated the Medium-Term Business Plan (FY2006 to FY2008) on April 2006 that is aimed at delivering sustained growth in corporate value by emphasizing quality, rather than just seeking for quantitative growth in the global steel market.

By implementing this plan, the Company aims to accelerate the distinctiveness of its

- 18 -

competitive capabilities and is targeting steady growth by emphasizing a balance between quality and scale. In this way, the Company aims to create a stronger operating structure that is more responsive to downturns, steadily minimize the impact of fluctuations in steel demand on operating performance, and constantly increase corporate value. (1) Outline The Board of Directors believes that the Company’s shareholders should make the final decisions as to whether or not a Large-scale Purchase (to be defined below) of the Company shares is acceptable. The Board of Directors also believes that such decision will be properly made based upon the shareholders’ understanding of the management policy above and the corporate value to be realized through such management policy.

Accordingly, the Board of Directors believes that the Company’s shareholders should be provided with sufficient and appropriate information, from both of the Board of Directors and a person or a company that intends to conduct a Large-scale Purchase, including information on the influence of the Large-scale Purchase affecting the Company and its group companies, and furthermore, should be given an opportunity and time to carefully consider the provided information. (2) Implementation Under the Medium-Term Business Plan (FY2006 to FY2008), the Company plans to build a more robust operating base by enhancing its intangible assets, namely its customers, employees and technologies, accelerating its distinctiveness, reinforcing its steelmaking facilities and other physical assets and strengthening its financial assets. Through these efforts, the Company seeks to become a company “trusted by all stakeholders”.

Moreover, the Company decided to adopt a policy (hereinafter called as the Large-scale Purchase Rules) on April 6, 2006, as a so-called “anti-takeover defense plan to be introduced in advance”, toward (i) a purchase of the Company certificates of shares and other securities by a group of shareholders with the intent to hold 20% or more of the total voting rights of the Company, or (ii) a purchase of the Company certificates of shares and other securities resulting in a group of shareholders holding 20% or more of the total voting rights of the Company. A purchase of the Company certificates of shares and other securities set out in (i) or (ii) above shall be hereinafter referred to as a Large-scale Purchase. A person or a company that intends to conduct a Large-scale Purchase shall be hereinafter referred to as a Large-scale Purchaser.

The Annual General Shareholders’ Meeting of the Company, held on June 27, 2006, approved the Large-scale Purchase Rules. The details of the Large-scale Purchase Rules are as prescribed in the following paragraphs. 1) The Large-scale Purchase Rules A. Submission of Intention Letter

When a Large-scale Purchaser intends to commence a Large-scale Purchase, such Large-scale Purchaser is required to submit to the Company a letter of intention to comply with the Large-scale Purchase Rules.

B. Provision of Information The Large-scale Purchaser is required to provide the Company with sufficient information (hereinafter referred to as the Large-scale Purchase Information) so that the Company’s shareholders may make decisions and the Board of Directors may form its opinion regarding such Large-scale Purchase. In order for the Large-scale Purchaser to provide the Large-scale Purchase Information, the Company will, within five (5) business days after receipt of the Intention Letter, deliver to the Large-scale Purchaser a list of the Large-scale Purchase Information to be provided by the Large-scale Purchaser. The Large-scale Purchase Information includes the following: (a) an outline of the Large-scale Purchaser and its group; (b) the purposes and conditions of the Large-scale Purchase; (c) the basis for determination of the purchase price and funds for purchase; (d) management policies which the Large-scale Purchaser intends to adopt after the

- 19 -

completion of the Large-scale Purchase; (e) policies to be implemented after the completion of the Large-scale Purchase on any

other interested parties of the Company and its group companies; and (f) in case where the Large-scale Purchaser conducts business of the same kind as the

Company’s or its group companies’ business, view on the legality of the Large-scale Purchase in terms of the Antimonopoly Act of Japan and overseas competition laws.

C. Assessment Period After the provision of the Large-scale Purchase Information is completed, the Board of Directors should be allowed a sixty-business-day period (in case of the purchase of all the Company shares by a tender offer with cash-only (yen) consideration) or a ninety-business-day period (in case of any other Large-scale Purchase), as the period during which it will assess, examine, negotiate, form an opinion and seek any alternative plans (hereinafter referred to as the Assessment Period).

The Board of Directors will thoroughly examine and assess the provided Large-scale Purchase Information during the Assessment Period, and form and disclose its opinion. The Board of Directors may negotiate with the Large-scale Purchaser in order to improve the terms of the proposed Large-scale Purchase or it may offer the alternative plan to shareholders, if necessary.

2) Countermeasures against Non-compliance with the Large-scale Purchase Rules

If a Large-scale Purchaser does not comply with the Large-scale Purchase Rules, the Board of Directors may take countermeasures against the Large-scale Purchaser to protect the interests of all of the Company’s shareholders as a whole. Countermeasures include the issuance of stock acquisition rights or any other measures that the Board of Directors is permitted to take under the Companies Act of Japan or other laws and the Company’s Articles of Incorporation. If a Large-scale Purchaser complies with the Large-scale Purchase Rules, the Board of Directors does not intend to prevent the Large-scale Purchase at its own discretion.

3) Effective Date and Effective Term of the Large-scale Purchase Rules

The Large-scale Purchase Rules took effect as of April 6, 2006. The Large-scale Purchase Rules will remain effective until the first meeting of the Board of Directors to be held after the Annual General Shareholders’ Meeting in 2009; provided, however, that the Company intends to review the Large-scale Purchase Rules from time to time from the viewpoint of enhancing the benefit of its shareholders as a whole and may amend or abolish the Large-scale Purchase Rules if necessary even during the effective term of the rules by a resolution of the Board of Directors.

(3) Evaluation by the Board of Directors and its reasons

The purpose of the Large-scale Purchase Rules is (i) to provide an opportunity for the Company’s shareholders to receive (a) information necessary to determine whether or not the Large-scale Purchase is acceptable and (b) an opinion by the Board of Directors that is currently in charge of the Company’s management, (ii) to secure the period of time necessary for the provision of such information and opinion and (iii) to provide an opportunity for the Company’s shareholders to consider any alternative plans. Therefore, the Large-scale Purchase Rules comply with the Basic Policy. The Board of Directors believes that under the Large-scale Purchase Rules, the Company’s shareholders will be able to receive sufficient information and make appropriate decisions as to whether or not the Large-scale Purchase is acceptable, whereby the interests of all the Company’s shareholders as a whole shall be protected.

As long as a Large-scale Purchaser complies with the Large-scale Purchase Rules, the Board of Directors does not intend to prevent the Large-scale Purchase at its own discretion. If a Large-scale Purchaser does not comply with the Large-scale Purchase Rules, the Board of Directors may take countermeasures against the Large-scale Purchaser. As a function of a countermeasure itself, however, the Board of Directors is not assuming that such countermeasure taken will cause any specific damage or loss to the Company’s shareholders (excluding a Large-scale Purchaser who does not comply with the Large-scale

- 20 -

Purchase Rules). Accordingly, the Board of Directors believes that the establishment of the Large-

scale Purchase Rules is not a tool for the Board of Directors to preserve its status, but an appropriate condition for the Company’s shareholders and investors to make appropriate decisions, and is for the benefit of the Company’s shareholders and investors as a whole.

(Note) The monetary figures and number of shares in this Business Report have been rounded down and other figures have been rounded off to the nearest unit.

- 21 -

Consolidated Balance Sheet Sumitomo Metal Industries, Ltd. and Consolidated Subsidiaries

March 31, 2008

Millions of yen Millions of yen Assets Liabilities

Current assets: Current liabilities: Cash and deposits ¥16,732 Trade notes and accounts payable ¥331,846 Trade notes and accounts receivable 175,144 Short-term borrowings 219,964 Inventories 438,802 Commercial paper 19,000 Deferred tax assets 18,965 Current portion of bonds 31,500 Other 28,322 Accrued income taxes 52,087 Allowance for doubtful receivables (202) Deferred tax liabilities 201 Total current assets 677,764 Other 127,303 Total current liabilities 781,903 Fixed assets: Long-term liabilities: Property, plant and equipment: Bonds 134,658 Buildings and structures 248,337 Long-term borrowings 478,765 Machinery and equipment 393,154 Deferred tax liabilities 7,848 Land 345,579 Deferred tax liabilities on land 6,976 Construction in progress 106,721 Liability for employees’ retirement Other 12,391 benefits 24,975 Total property, plant and equipment 1,106,183 Liability for rebuilding furnaces 224 Other 33,654 Total long-term liabilities 687,103 Intangibles: Goodwill 1 Total liabilities 1,469,007 Other 4,758 Total Intangibles 4,760 Net assets Investments and other assets: Shareholders’ equity: Investment securities 580,156 Capital stock 262,072 Deferred tax assets 9,321 Capital surplus 61,829 Other 41,167 Retained earnings 630,063 Allowance for doubtful receivables (1,044) Treasury stock, at cost (90,210) Total Investments and other assets 629,601 Total shareholders’ equity 863,754 Total fixed assets 1,740,545 Valuation and translation adjustments: Unrealized gain on available-for-sale securities 35,403 Deferred loss on derivatives under hedge accounting (1,162) Land revaluation surplus 11,561 Foreign currency translation adjustments (7,611) Total Valuation and translation adjustments 38,191 Minority interests 47,356 Total net assets 949,303 Total assets ¥2,418,310 Total liabilities and net assets ¥2,418,310

- 22 -

Consolidated Statement of Income Sumitomo Metal Industries, Ltd. and Consolidated Subsidiaries Year ended March 31, 2008 Millions of yen

Net sales ¥1,744,572 Cost of sales 1,329,563 Gross profit 415,009 Selling, general and administrative expenses Delivery expense 47,327 Employee’s salary expense 38,892 Research and development expenses 19,903 Other 34,488 140,612 Operating profit 274,396 Non-operating income Interest income 1,310 Dividend income 5,262 Equity in earnings of unconsolidated subsidiaries and associated companies 41,919 Other 14,282 62,775 Non-operating expenses Interest expense 13,466 Dismantlement expenses 6,943 Other 18,543 38,954 Recurring profit 298,218 Non-recurring profit Gain on sales of investment securities 6,903 6,903 Non-recurring losses Loss on disposal and sales of property, plant and equipment and other assets 11,185 Impairment loss on fixed assets 6,438 Loss on compensation for completed construction 6,200 23,823 Income before income taxes and minority interests 281,298 Current income taxes 88,054 Deferred income taxes 8,365 96,420 Minority interests 4,330 Net income ¥180,547

- 23 -

Consolidated Statement of Changes in Net Assets Sumitomo Metal Industries, Ltd. and Consolidated Subsidiaries Year ended March 31, 2008

Millions of yen

Shareholders’ equity

Capital stock Capital surplus Retained

earnings Treasury stock, at cost

Total shareholders’ equity

Balance as of March 31, 2007 262,072 61,897 490,523 (71,424) 743,068

Changes during the fiscal year Cash dividends (43,597) (43,597)Net income 180,547 180,547Purchase of treasury stock (70,768) (70,768)Disposal of treasury stock (67) (2,220) 51,982 49,694Increase in treasury stock arising from changes in interest in affiliates

(0) (0)

Reversal of reserve for land revaluation surplus

4,811 4,811

Other changes in non-shareholders’ equity items during the fiscal year (net)

Total changes during the fiscal year

- (67) 139,539 (18,785) 120,686

Balance as of March 31, 2008 262,072 61,829 630,063 (90,210) 863,754

Valuation and translation adjustments

Unrealized gain on available-for-sale securities

Deferredloss on derivatives under hedge accounting

Land revaluation surplus

Foreign currency translation adjustments

Total valuation and translation adjustments

Minority interests

Total net assets

Balance as of March 31, 2007 122,825 (541) 16,804 (1,349) 137,738 43,990 924,798

Changes during the fiscal year Cash dividends (43,597)Net income 180,547Purchase of treasury stock (70,768)Disposal of treasury stock 49,694Increase in treasury stock arising from changes in interest in affiliates

(0)

Reversal of reserve for land revaluation surplus

4,811


(87,421) (620) (5,242) (6,262) (99,547) 3,365 (96,181)


(87,421) (620) (5,242) (6,262) (99,547) 3,365 24,504

Balance as of March 31, 2008 35,403 (1,162) 11,561 (7,611) 38,191 47,356 949,303

Note: Figures in parentheses are negative values.

- 24 -

Significant Accounting Policies 1. Scope of consolidation a. Number of consolidated subsidiaries: 71 Names of principal companies:

Sumitomo Metals (Kokura), Ltd. East Asia United Steel Corporation Sumikin Iron & Steel Corporation Sumitomo Metals (Naoetsu), Ltd. Sumitomo Pipe & Tube Co., Ltd. Sumikin Steel & Shapes, Inc. Sumitomo Metal Logistics Service Co., Ltd. Sumitomo Metal (SMI) Electronics Devices Inc. Western Tube & Conduit Corp. Seymour Tubing, Inc. International Crankshaft Inc. Huizhou Sumikin Forging Co., Ltd.

In addition to the company that began operations in this fiscal year, Sumikin Mining Co., Ltd. and another company to which the equity method was applied in the previous fiscal year have been added to the list of consolidated subsidiaries. Furthermore, one company which is no longer a subsidiary and one company that became an affiliated company accounted for using the equity method have been removed from the list of consolidated subsidiaries.

b. Names of principal non-consolidated subsidiaries Aritakaiun Co., Ltd. and the other (Reason for exclusion from the scope of consolidation) These companies are excluded from the scope of consolidation because they are small-scale

enterprises whose total assets, net sales, net income (corresponding to holding) and retained earnings (corresponding to holding) have no material impact on the Company’s consolidated financial statements.

2. Application of the equity method a. Number of non-consolidated subsidiaries accounted for using the equity method: 1 Name of company: Kanto Special Steel works, Ltd. b. Number of associated companies accounted for using the equity method: 33 Names of principal companies:

SUMCO Corporation Kashima Kyodo Electric Power Co. Kyoei Steel, Ltd.

Daiichi Chuo Kisen Kaisha Sumikin Bussan Corporation

Nippon Steel & Sumikin Coated Sheet Corporation Sumitomo Precision Products Co., Ltd.

OSAKA Titanium technologies Co., Ltd. Nippon Steel & Sumikin Metal Products Co., Ltd. Nippon Steel & Sumikin Stainless Steel Corporation Chuo Denki Kogyo Co., Ltd. Nippon Steel & Sumikin Welding Co., Ltd. Vallourec & Sumitomo Tubos do Brasil Ltda.

Vallourec & Sumitomo Tubos do Brasil Ltda. and two other companies that were newly established in this fiscal year, as well as a consolidated subsidiary in the previous fiscal year, have been added to the scope of application of the equity method. Sumikin Mining Co., Ltd. and another company that became consolidated subsidiaries are excluded from the scope of application of the equity method. The equity method was applied to SUMCO Corporation, based on the company’s consolidated financial statements.

- 25 -

c. Investments in non-consolidated subsidiaries and other associated companies not accounted for using the equity method (Katakura Steel Tube Co., Ltd. and others) were excluded from the scope of application of the equity method because of their lack of overall materiality and the slight impact their exclusion would exert on the Company’s consolidated financial statements, due to their net income (relative to holding) and retained earnings (relative to holding).

3. The accounting period of consolidated subsidiaries The following subsidiaries have fiscal year ending dates that are different from the consolidated

closing date.

Company name Fiscal year ending Kashima Antlers Football Club Co., Ltd. January 31 Sumikin Recycling Co., Ltd. January 31 Sumikin Financial Service Co., Ltd. December 31 A total of 18 overseas subsidiaries, including Western Tube & Conduit Corp.

December 31

The figures on fiscal year ending dates of the subsidiaries listed above are used in the consolidated financial statements. Significant transactions that occur between these subsidiaries’ fiscal year ending dates and the consolidated closing dates are accounted for by necessary adjustments to the consolidated financial statements.

4. Accounting policies a. Valuation standards and methods of significant assets (a) Securities Marketable available-for-sale securities: Valued based on their market price on the date of settlement of the consolidated financial

statements (the valuation excess is disposed using the total net asset value input method, and the cost of disposal by sale is determined by the moving average method)

Non-marketable available-for-sale securities: Valued at cost, determined by the moving average method (b) Inventories Stated at cost, by the average method. (c) Derivatives Measured at fair value b. Method of depreciation (a) Property, plant and equipment Depreciation of the buildings of the Company and the domestic consolidated subsidiaries is

calculated chiefly by the straight-line method; the depreciation of other properties is computed by the declining-balance method. Depreciation of assets of the overseas subsidiaries is calculated chiefly by the straight-line method. The useful lives are principally 31 years for buildings and structure; 14 years for machinery and equipment.

(Changes to accounting policy) For the company and domestic consolidated subsidiaries, property, plant and equipment acquired on and after April 1, 2007 are depreciated by the declining-balance method in accordance with the revised corporate tax raw, which is effective for fiscal years beginning on and after April 1, 2007. The effect of this treatment was to decrease operating profit for the year ended March 31, 2008 by ¥3,343 million, and recurring profit and income before income taxes and minority interests by ¥3,346 million, respectively.

(Additional information) Property, plant and equipment acquired before March 31, 2007 had been depreciated up to 95% of acquisition cost with 5% of residual value carried until previous fiscal years. However, such 5% potion of property, plant and equipment is systematically amortized over 5 years starting in the following year in which the carrying value of property, plant and equipment reaches 5% of the acquisition cost in accordance with the revised corporate tax law. The effect of this treatment was to decrease operating profit for the year ended March 31, 2008 by ¥11,059 million and recurring profit and income before income taxes and minority interests by ¥11,066 million, respectively.

- 26 -

(b) Intangibles The depreciation of intangibles is calculated by the straight-line method. c. Deferred assets Stock issue costs and bond issue costs are recorded at total cost when expended. d. Allowances (a) Allowance for doubtful receivables The allowance for doubtful receivables is the estimated unrecoverable amount calculated

based on a) for receivables in general, the rate of occurrence of non-recovery, and b) for other specific receivables, the estimated possibility of recovery considered on a case-by-case basis.

(b) Liability for employees’ retirement benefits The amount of the liability for employees’ retirement benefits is determined based on the

projected benefit obligations and plan assets of the pension fund as at the end of the fiscal year. Prior service cost is amortized using the straight-line method over a specific number of years (typically 12 years) that is within the average number of remaining years of service of employees when liabilities are incurred. Actuarial differences are amortized mainly using the straight-line method over a specific number of years (typically 11 years) that is less than the average number of remaining years of service of employees calculated for the years following the year in which such actuarial differences arise.

(c) Liability for rebuilding furnaces The liability for rebuilding furnaces is provided for the estimated future costs based on past

experience. e. Foreign currency transactions and financial statements All short-term and long-term monetary receivables and payables denominated in foreign

currencies are translated into Japanese yen at the exchange rates at the balance-sheet date. The foreign exchange-gains and losses from translation are recognized in the statement of income. The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rates at the balance sheet day except for shareholders’ equity, which is translated historical exchange rate. Differences arising from such translation were shown as “Foreign currency translation adjustments” in a separate component of shareholders’ equity. Revenue and expense accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate of the balance sheet date.

f. Revenue recognition The percentage of completion method is applied to construction projects taking more than

one year to complete and having a total undertaking of ¥100 million. g. Leases In finance leasing transactions of the Company and its domestic consolidated subsidiaries

other than those where the ownership of the leased item is deemed to be transferred to the lessee, the accounting methods are based on those used for ordinary leasing transactions.

h. Hedge activities (a) Hedge accounting methods Deferred hedge accounting is used. In addition, a portion of interest rate swaps are treated

in a special way. (b) Means of hedging and subjects of hedging Interest swaps, currency swaps and exchange contracts are used to hedge against the

following risks: risks associated with market interest rate and cash flow fluctuations in relation to debts and bonds, risks associated with changes in foreign exchange rates fluctuations in relation to foreign currency transactions.

(c) Policy of hedging Derivative trading is used within the scope of the outstanding balance of the debts and

receivables being hedged against. The Group does not hold derivatives for short-term trading or highly leveraged speculative purposes.

(d) Methods used to assess the effectiveness of hedging During the period from the beginning of hedging until the point at which the hedging is

considered to be effective, the hedge effectiveness is confirmed by comparing the total change in the market price that is being hedged against with the total change in the market price that is being used as the means of hedging.

- 27 -

i. Consumption taxes Consumption tax is recorded as a liability and an asset, and is excluded from the relevant

revenue, cost or expenses. 5. Valuation of assets and liabilities of consolidated subsidiaries Assets and liabilities of consolidated subsidiaries are calculated using the overall market

price valuation method. 6. Goodwill and negative goodwill accounts Goodwill and negative goodwill accounts are depreciated using the straight-line method,

typically over 5 years.

- 28 -

Notes to Consolidated Balance Sheet 1. Assets pledged as collateral for debt a. Assets pledged as collateral

Cash and deposits ¥3 million Property, plant and equipment 18,609 Total ¥18,612 million

b. Secured debts

Trade notes payable and trade accounts payable ¥1,784 million Short-term borrowings 200 Long-term borrowings 3,428 Total ¥5,413 million

2. Accumulated depreciation for property, plant and equipment ¥2,234,821 million 3. Contingent liabilities a. Guarantees The bank loans and other which the Group guarantees, as follows:

”Guarantees” includes guarantees and items of a similar nature.

Hibikinada Development Co., Ltd. ¥846 million Baoji-SMI Petroleum Steel pipe Co., Ltd. 384 Kyoei Recycling Co., Ltd. 200 7 other companies 271 Total ¥1,702 million

b. Obligation to repurchase transferred receivables under certain conditions ¥8,072 million

- 29 -

Notes to the Consolidated Statement of Changes in Net Assets 1. Type and number of stock issued at the end of the fiscal year Common stock 4,805,974,238 shares 2. Dividends a. Cash dividends paid in the fiscal year

Resolved at Type of stock

Total dividend (million yen)

Dividend per share

Record date Effective date of issue of dividends

Board of Directors held on May 16, 2007

Common stock

20,882 4.5 March 31, 2007 June 4, 2007

Board of Directors held on October 30, 2007

Common stock

22,715 5.0 September 30, 2007

December 3, 2007

b. Dividends of which record date is within the fiscal year, but the effective date of issue of the dividends belongs to next fiscal year.

Resolved at Type of stock

Source of dividend funding

Total dividend (million yen)

Dividend per share

Record date

Effective date of issue of dividends

Board of Directors held on May 13, 2008

Common stock

Retained earnings

23,194 5.0 March 31, 2008

May 30, 2008

Financial information on a per-share basis 1. Net assets per share 194.43 yen 2. Net income per share 39.43 yen

(Note) The monetary figures in this Consolidated Financial Statements have been rounded down to the nearest

unit.

- 30 -

(References)

Summary of the Consolidated Statement of Cash Flows Sumitomo Metal Industries, Ltd. and Consolidated Subsidiaries Year ended March 31, 2008 Billions of yen

Net cash provided by operating activities ¥230.0 Net cash used in investing activities (274.3) Net cash used in financing activities 48.7 Foreign currency translation adjustments on cash and cash equivalents (0.8) Net decrease in cash and cash equivalents ¥3.6

Summary of Segment Information Sumitomo Metal Industries, Ltd. and Consolidated Subsidiaries Year ended March 31, 2008

Billions of yen Steel Engineering Electronics Other Total Corporate or

Eliminations Consolidated

Sales to customers ¥1,622.3 ¥15.3 ¥61.6 ¥45.1 ¥1,744.5 - ¥1,744.5Inter-segment sales 2.5 - - 22.6 25.1 (¥25.1) -

Total sales 1,624.9 15.3 61.6 67.7 1,769.7 (25.1) 1,744.5

Operating profit ¥269.0 ¥0.1 (¥0.2) ¥5.8 ¥274.7 (¥0.3) ¥274.3 (Note) All figures in these references above are rounded down to the nearest hundred million yen.

Figures in parentheses are negative values.

- 31 -

Balance Sheet Sumitomo Metal Industries, Ltd.

March 31, 2008 Millions of yen Millions of yen Assets Liabilities

Current assets: Current liabilities: Cash and deposits ¥4,664 Trade notes payable ¥16,479 Trade notes receivable 229 Accounts payable 214,320 Trade accounts receivable 85,390 Short-term borrowings 145,369 Finished goods 41,473 Commercial Paper 19,000 Semi-finished goods 67,566 Current portion of bonds 31,500 Work-in-process 9,908 Other accounts payable 149,246 Raw materials 30,187 Accrued expenses 13,331 Supplies 85,543 Accrued income taxes 35,550 Advance payments 5,075 Advances received 230 Prepaid expenses 880 Deposit received 738 Deferred tax assets 9,915 Deferred income 3 Other accounts receivable 148,726 Other 2,398 Short-term loans receivable 130,718 Total current liabilities 628,170 Other 2,451 Allowance for doubtful receivables (28) Long-term liabilities: Total current assets 622,703 Bonds 134,658 Long-term borrowings 469,919 Fixed assets: Deferred tax liabilities 2,711 Property, plant and equipment: Liability for employees’ retirement Buildings 96,541 benefits 5,656 Structures 52,809 Liability for rebuilding furnaces 170 Machinery and equipment 270,246 Long-term accounts payable 17,194 Vessels and transportation equipment 811 Other 9,269 Tools, furniture and fixtures 4,837 Total long-term liabilities 639,580 Land 215,974 Construction in progress 48,184 Total liabilities 1,267,750 Total property, plant and equipment 689,404 Net assets Shareholders’ equity: Intangibles: Capital stock 262,072 Patent rights 32 Capital surplus: Utility rights 312 Additional paid-in capital 61,829 Other 714 Total capital surplus 61,829 Total Intangibles 1,058 Retained earnings: Legal reserve of retained earnings 38,374 Investments and other assets: Other retained earnings: Investment securities 332,531 Reserve for special depreciation 3,890 Investments in subsidiaries and Reserve for rebuilding furnaces 1,194 associated companies 264,114 Reserve for deferral of Other investments 57 capital gain on the sale and Other investments in subsidiaries 12,198 replacement of certain assets 2,466 Long-term loans receivable 0 Retained earnings carried forward 363,131 Long-term loans to employees 33 Total retained earnings 409,057 Long-term loans to subsidiaries 11,499 Treasury stock, at cost (90,190) Bankruptcy and reorganization Total shareholders’ equity 642,768 receivables 176 Long-term prepaid expenses 5,198 Valuation and translation adjustments: Other 2,410 Unrealized gain on available-for-sale Allowance for doubtful receivables (178) securities 31,220 Allowance for investment losses (543) Deferred losses on derivatives under Total Investments and other assets 627,499 hedge accounting (1,073) Total valuation and translation Total fixed assets 1,317,963 adjustments 30,146 Total net assets 672,915 Total assets ¥1,940,666 Total liabilities and net assets ¥1,940,666

- 32 -

Statement of Income Sumitomo Metal Industries, Ltd. Year ended March 31, 2008 Millions of yenNet sales ¥1,141,473 Cost of sales Inventories as of the beginning of the fiscal year 32,615 Cost of manufacturing goods 879,792 Total 912,408 Other issuances 5,678 Inventories as of the end of the fiscal year 41,473 865,257 Gross profit 276,216 Selling, general and administrative expenses Delivery expense 29,083 Employee’s salary expense 11,661 Provisions of liability for employees' retirement benefits 1,041 Depreciation expense 317 Rent expense 1,679 Research and development expenses 16,677 Other 11,223 71,685 Operating profit 204,531 Non-operating income Interest income 2,372 Dividend income 25,268 Gain on sales of current assets 6,285 Other 4,835 38,761 Non-operating expenses Interest expense 9,536 Bond interest expense 2,146 Dismantlement expenses 4,908 Other 11,716 28,307 Recurring profit 214,985 Non-recurring profit Gain on sales of investment securities 6,903 6,903 Non-recurring losses Loss on disposal and sales of property, plant and equipment and other assets 3,919 Impairment loss on fixed assets 1,945 Loss on devaluation of investments in subsidiaries and associated companies 7,083 Loss on compensation for completed construction 6,200 19,147 Income before income taxes 202,742 Current income taxes 63,000 Deferred income taxes 10,373 73,373 Net income ¥129,368

- 33 -

Statement of Changes in Net Assets Sumitomo Metal Industries, Ltd. Year ended March 31, 2008

Millions of yenShareholders’ equity

Capital surplus Retained earnings Other retained earnings

Capital stock Additional

paid-in capital

Total capital surplus

Legal reserve of retained earnings

Reserve for special depreciation

Reserve for rebuilding furnaces

Reserve for deferral of capital gain on the sale and replacement of certain assets

Retained earnings carried forward

Total retained earnings

Treasury stock, at cost

Total shareholders’ equity

Balance as of March 31, 2007

262,072 61,829 61,829 38,374 330 755 2,457 283,659 325,577 (71,404) 578,075

Changes during the fiscal year

Increase of reserve for special depreciation

3,706 (3,706) - -

Decrease of reserve for special depreciation

(147) 147 - -

Increase of reserve for rebuilding furnaces

438 (438) - -

Increase of reserve for deferral of capital gain on the sale and replacement of certain assets

9 (9) - -

Cash dividends (43,600) (43,600) (43,600)Net income 129,368 129,368 129,368

Purchase of treasury stock

(70,768) (70,768)

Disposal of treasury stock

(2,288) (2,288) 51,982 49,694



- - - - 3,559 438 9 79,471 83,479 (18,785) 64,693


262,072 61,829 61,829 38,374 3,890 1,194 2,466 363,131 409,057 (90,190) 642,768


- 34 -

Millions of yen Valuation and translation adjustments

Unrealized gain on available-for-sale securities

Deferred loss on derivatives under hedge accounting

Total valuation and translation adjustments

Total net assets


113,263 (508) 112,755 690,830

Changes during the fiscal year

Increase of reserve for special depreciation

-

Decrease of reserve for special depreciation

-

Increase of reserve for rebuilding furnaces

-

Increase of reserve for deferral of capital gain on the sale and replacement of certain assets

-

Cash dividends (43,600)Net income 129,368Purchase of treasury stock

(70,768)

Disposal of treasury stock

49,694


(82,043) (565) (82,608) (82,608)


(82,043) (565) (82,608) (17,914)


31,220 (1,073) 30,146 672,915


- 35 -

Significant Accounting Policies 1. Valuation standards and methods of assets a. Securities (a) Investment in subsidiaries and associated companies Valued at cost, determined by the moving average method (b) Marketable available-for-sale securities: Valued based on their market price on the fiscal year ending dates (the valuation excess is

disposed using the total net asset value input method, and the cost of disposal by sale is determined by the moving average method)

Non-marketable available-for-sale securities: Valued at cost, determined by the moving average method (c) Inventories Inventories are stated at cost, by the average method (d) Derivatives Measured at fair value 2. Method of depreciation a. Property, plant and equipment Depreciation of buildings is calculated by the straight-line method (the useful lives are

principally 31 years). Depreciation of machinery and vehicles is calculated by the declining-balance method (the useful lives are principally 14 years). (Changes to accounting policy) Property, plant and equipment acquired on and after April 1, 2007 are depreciated by the declining-balance method in accordance with the revised corporate tax raw, which is effective for fiscal years beginning on ad after April 1, 2007. The effect of this treatment was to decrease operating profit for the year ended March 31, 2008 by ¥2,720 million, and recurring profit and income before income taxes by ¥2,722 million, respectively. (Additional information) Property, plant and equipment acquired before March 31, 2007 had been depreciated up to 95% of acquisition cost with 5% of residual value carried until previous fiscal years. However, such 5% of potion of property, plant and equipment is systematically amortized over 5 years starting in the following year in which the carrying value of property, plant and equipment reaches 5% of the acquisition cost in accordance with the revised corporate tax raw. The effect of this treatment was to decrease operating profit for the year ended March 31, 2008 by ¥8,688 million and recurring profit and income before income taxes by ¥8,695 million, respectively.

b. Intangibles The depreciation of intangibles is calculated by the straight-line method. 3. Deferred assets Bond issue costs are recorded at total cost when expended. 4. Allowances a. Allowance for doubtful receivables The allowance for doubtful receivables is the estimated unrecoverable amount that is

calculated based on a) for receivables in general, the rate of occurrence of non-recovery, and b) for other specific receivables, the estimated possibility of recovery considered on a case-by-case basis.

b. Allowance for investment losses The allowance for investment losses is provided for probable loss on investments in

subsidiaries and other investments, based on their financial status and other circumstances.

- 36 -

c. Liability for employees’ retirement benefits The amount of the liabilities for retirement benefits is determined based on the projected

benefit obligations and plan assets of the pension fund as at the end of the fiscal year. Actuarial differences are amortized mainly using the straight-line method over a specific number of years (11 years) that is less than the average number of remaining years of service of employees calculated for the year following the year such actual in which such actual differences arise.

d. Liability for rebuilding furnaces The liability for rebuilding furnaces is provided for the estimated future costs based on past

experience. 5. Foreign currency transactions All short-term and long-term monetary receivables and payables denominated in foreign

currencies are translated into Japanese yen at the exchange rates on the balance-sheet date. The foreign exchange gains and losses from translation are recognized in the statement of income.

6. Revenue recognition The percentage of completion method is applied to construction projects taking more than

one year to complete and having a total undertaking of ¥100 million. 7. Leases In finance leasing transactions other than those where the ownership of the leased item is

deemed to be transferred to the lessee, the accounting methods are based on those used for ordinary leasing transactions.

8. Hedge activities a. Hedge accounting methods Deferred hedge accounting is used. In addition, a portion of interest swaps are treated in a

special way. b. Means of hedging and subjects of hedging Interest swaps, currency swaps and exchange contracts are used to hedge against the

following risks: risks associated with market interest rate and cash flow fluctuations in relation to debts and bonds, risks associated with foreign exchange rates fluctuation in relation to foreign-currency-denominated transactions.

c. Policy of hedging Derivative trading is used within the scope of the outstanding balance of the debts and

receivables being hedged against. The Group does not hold derivatives for short-term trading or highly leveraged speculative purposes.

d. Methods used to assess the effectiveness of hedging During the period from the beginning of hedging until the point at which the hedging is

judged to be effective, the hedge effectiveness is confirmed by comparing the total change in the market price that is being hedged against with the total change in the market price that is being used as the means of hedging.

9. Consumption taxes Consumption tax is recorded as a liability or an asset, and is excluded from the relevant

revenue, cost or expenses.

- 37 -

Notes to Balance Sheet 1. Accumulated depreciation for property, plant and equipment ¥1,623,515 million 2. Contingent liabilities a. Guarantees The bank loans and other which the Company guarantees, as follows:

”Guarantees” includes guarantees and items of a similar nature.

Sumikin Financial Service Co., Ltd. ¥11,345 million Sumikin Kosan Co., Ltd. 8,950 Sumitomo Metals (Kokura), Ltd. 2,917 Sumikin Mining Co., Ltd. 1,380 Sumitomo Metal Fine Technology Co., Ltd. 1,202 Sumikin Steel & Shapes, Inc. 954 18 other companies 5,961 Total ¥32,712 million

b. Obligation to repurchase transferred receivables under certain conditions. ¥693 million 3. Receivables and payables to subsidiaries and associated companies

Short-term receivables ¥302,007 million Long-term receivables ¥11,499 million Short-term payables ¥178,297 million

Note to Statement of Income Transactions with subsidiaries and associated companies Business transactions

Sales to subsidiaries and associated companies ¥247,386 million Purchases from subsidiaries and associated companies ¥574,151 million

Other transactions with subsidiaries and associated companies ¥437,393 million Note to Statement of Changes in Net Assets Type and number of treasury stock issued at the end of the fiscal year Common stock 166,779,467 shares Note to Accounting for deferred taxes Deferred tax assets mainly arise from temporary differences concerning to valuation of fixed assets, inventories and other assets. Deferred tax liabilities mainly arise from unrealized gain on available-for-sale securities. Note to leased fixed assets In addition to the fixed assets on balance sheet, some tools, furniture and fixtures are leased under

finance lease agreements where the ownership is not transferred.

- 38 -

Notes to related party transactions Subsidiaries and affiliated companies

Relationship details Class Company name Ownership ratio to voting rights (%)

Directors serving on both companies (No of directors:)

Business relationship

Associated company

Sumikin Bussan Corporation

Direct: 38.5 Indirect: 0.0

Serving concurrently: 1 On transfer: 5

Sumikin Busan sells the SMI’s products and procures raw materials.

Transactions Trading

volume (Millionsof yen)

Account Balance at the end of the fiscal year (Millions of yen)

Sale of steel products (*1)

172,929 Accounts receivable

8,917

Purchase of raw materials for steel production, steel semi-finished products, etc (*23)

257,310 Accounts payable

57,208

Trade conditions and their determination Notes: 1. *1: The sale of steel products follows consideration of the listed prices of SMI, market

prices and selling price negotiations. 2. *2: The purchase of steel raw materials and steel semi-finished products follows

consideration of the listed prices, market prices and purchase price negotiations. 3. Although consumption tax and other taxes are not included in the trading volume, these

taxes are included in the balance at the end of the fiscal year.

Financial information on a per-share basis 1. Net assets per share 145.05 yen 2. Net income per share 28.25 yen

(Note) The monetary figures in this Financial Statements have been rounded down to the nearest unit and

other figures have been rounded off to the nearest unit.

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(TRANSLATION) Independent Auditors’ Report for the Consolidated Financial Statements (certified copy)

INDEPENDENT AUDITORS' REPORT

May 7, 2008 To the Board of Directors of Sumitomo Metal Industries, Ltd.:

Deloitte Touche Tohmatsu

Designated Partner, Engagement Partner, Certified Public Accountant: Osami Yoshida Designated Partner, Engagement Partner, Certified Public Accountant: Yukitaka Maruchi Designated Partner, Engagement Partner, Certified Public Accountant: Tsuguo Itou Pursuant to the fourth clause of Article 444 of the Companies Act, we have audited the consolidated financial statements, namely, the consolidated balance sheet as of March 31, 2008 of Sumitomo Metal Industries, Ltd. (the “Company”) and consolidated subsidiaries, and the related statements of income and changes in net assets for the fiscal year from April 1, 2007 to March 31, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and consolidated subsidiaries as of March 31, 2008, and the results of their operations for the year then ended in conformity with accounting principles generally accepted in Japan. Our firm and the engagement partners do not have any financial interest in the Company for which disclosure is required under the provisions of the Certified Public Accountants Law. The above represents a translation, for convenience only, of the original report issued in the Japanese language.

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(TRANSLATION) Independent Auditors’ Report (certified copy)

INDEPENDENT AUDITORS' REPORT

May 7, 2008 To the Board of Directors of Sumitomo Metal Industries, Ltd.:

Deloitte Touche Tohmatsu Designated Partner, Engagement Partner, Certified Public Accountant: Osami Yoshida Designated Partner, Engagement Partner, Certified Public Accountant: Yukitaka Maruchi Designated Partner,

Engagement Partner, Certified Public Accountant:

Tsuguo Itou Pursuant to the first item, second clause of Article 436 of the Companies Act, we have audited the financial statements, namely, the balance sheet as of March 31, 2008 of Sumitomo Metal Industries, Ltd. (the “Company”), and the related statements of income and changes in net assets for the 85th fiscal year from April 1, 2007 to March 31, 2008, and the accompanying supplemental schedules. These financial statements and the accompanying supplemental schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the accompanying supplemental schedules based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the accompanying supplemental schedules are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and the accompanying supplemental schedules. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement and the accompanying supplemental schedules presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and the accompanying supplemental schedules referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2008, and the results of its operations for the year then ended in conformity with accounting principles generally accepted in Japan. Our firm and the engagement partners do not have any financial interest in the Company for which disclosure is required under the provisions of the Certified Public Accountants Law. The above represents a translation, for convenience only, of the original report issued in the Japanese language and “the accompanying supplemental schedules” referred to in this report are not included in the attached financial documents.

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(TRANSLATION)

Audit Report of the Board of Corporate Auditors (certified copy)

AUDIT REPORT In respect of the execution of duties by the Directors during the 85th business year commenced on April 1, 2007 and ended on March 31, 2008, we, the Board of Corporate Auditors, based on the audit reports prepared by each Corporate Auditor and following the deliberation among us, have prepared this audit report and hereby report as follows: 1. Auditing methods employed by Corporate Auditors and the Board of Corporate Auditors and

details of such methods (1) Corporate Auditors

Each Corporate Auditor, following the Auditing Rules and the auditing policy and plan determined by the Board of Corporate Auditors, has attended the Board of Directors meetings and other important meetings, received reports from the Directors and employees on the execution of their duties including those relating to subsidiaries, requested explanations when necessary, reviewed important documents, and investigated the status of the operations and financial status at the head office and other principal plants. In respect of subsidiaries, each Corporate Auditor has also received reports on the business from the directors, corporate auditors and other personnel of the subsidiaries when necessary. Furthermore, each Corporate Auditor has reviewed the resolution of the Board of Directors concerning the development of systems necessary to ensure the properness of operations (Article 362, Paragraph 4, Item 6 of the Companies Act), as well as the status of the systems developed based on the resolution. Each Corporate Auditor has reviewed the basic policy on control over the Company (Article127 of the Enforcement Regulation of the Companies Act) and the measures to be taken to it, that are described in the business report, considering the trend of laws and other circumstances after the basic policy was decided in April, 2006. Based on this approach, each Corporate Auditor has reviewed the business report and their supplementary schedules of the reporting business year.

In addition, each Corporate Auditor has been explained, by the Accounting Auditor, the policies, working plans and methods of accounting audit as well as the audit results, has been notified and explained that “systems to ensure that duties are performed properly” (matters set forth in each item of Article 159 of the Company Accounting Regulations) have been developed in accordance with “Quality Management Standards Regarding Audits” (October 28, 2005, the Business Accounting Council) and other relevant standards, and has examined whether the Accounting Auditor has maintained its independence and has conducted appropriate audits. Based on this approach, each Corporate Auditor has considered whether the methods and results of the audits conducted by the Accounting Auditor on the financial statements, their supplementary schedules and the consolidated financial statements for the reporting business year have been appropriate and sufficient.

(2) The Board of Corporate Auditors

The Board of Corporate Auditors has received reports from each Corporate Auditor regarding performance of their audits and results thereof; as well as reports from the Directors, employees and the Accounting Auditor regarding execution of their duties, and has requested explanations where necessary.

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2. Results of the audit (1) Business reports, etc.

1) We have found that the business report and its supplementary schedules fairly represent the Company’s conditions in accordance with the laws and regulations and the Company’s Articles of Incorporation.

2) We have found no significant facts relating to wrongful act or violation of laws and regulations or the Company’s Articles of Incorporation, with respect to the execution of duties by the Directors.

3) We confirm that the resolutions of the Board of Directors concerning the development of systems necessary to ensure the properness of operations are appropriate. In addition, we have found no matters to be noted in regards to the development thereof.

4) The basic policy on control over the Company and the measures to be taken to it that are described in business report are appropriate as a rule about a large-scale purchase of the Company shares. We have found no matters to be noted in regards thereto.

(2) Financial Statements and their supplementary schedules

We have found that the methods and results of the audit conducted by the Accounting Auditor, Deloitte Touche Tohmatsu (the independent auditing firm) are appropriate and sufficient.

(3) Consolidated Financial Statements

We have found that the methods and results of the audit conducted by the Accounting Auditor, Deloitte Touche Tohmatsu (the independent auditing firm) are appropriate and sufficient.

May 12, 2008 The Board of Corporate Auditors Sumitomo Metal Industries, Ltd.

Kunihiko Suemitsu, Standing Corporate Auditor (full-time) Shigeru Sakurai, Standing Corporate Auditor (full-time) Shogo Takai, Corporate Auditor Eiji Asada, Corporate Auditor Keiichi Murakami, Corporate Auditor

(Note) Shogo Takai, Eiji Asada and Keiichi Murakami are the outside corporate auditors as provided for

in Article 2, Item 16 of the Companies Act.