On the First Anniversary of the NSC / POSCO Strategic Alliance

Notable progress in discussions on possible cooperation of
technology development， raw material purchasing， IT， etc. -

NSC and POSCO signed a strategic alliance agreement one year ago， and a recent assessment of the status of discussions between the two companies since then on possible cooperation of technology development， materials purchasing， IT， etc.， suggests that it could have effect comparable to that of consolidation.

Mr.Akira Chihaya， NSC Representative Director and President and Mr.Sang-Boo Yoo， POSCO Chairman and CEO ， who met on the 3rd， assessed the progress of the first year of undertaking as satisfactory. They also agreed to pursue a further cooperation towards creating more synergy between the two companies.

Enhancing competitiveness through integration and expansion is the latest development in the steel industry， as evidenced by the merger or consolidation announcement of Usinor and Arbed in Europe， or NKK and Kawasaki Steel in Japan. Companies in upstream and downstream industries are also expanding their sizes to exercise greater power in the market: GM and five other major companies currently hold 80% of the world*s automobile market； CVRD and two other leading firms enjoy a 70% share of the world*s iron ore market.

POSCO and NSC entered into the strategic alliance agreement， which provides for cross share holding arrangement， in August last year as an active response to changing management environment， and confirmed their respective commitments to enhancement of competitiveness through competition and cooperation， and to the development of the steel industry.

NSC has acquired 3% of POSCO*s shares as agreed in that alliance agreement. Meanwhile， POSCO has secured 1.06% of NSC*s shares and plans to buy additional equities up to the same amount which NSC paid for POSCO*s share.

The two companies established a Steering Committee co-chaired by executive- vice-president-level management in September of last year， under which sub-committees were formed for discussing and planning specific partnerships， and providing assistance. Ad hoc committees in R&D/technology， raw materials purchasing and machinery/materials purchasing were also established. In addition， six Sectoral Study Groups to deal with personnel/labor relations， information system/IT， e-commerce， engineering etc. were formed.

Thus， in the technology sector， POSCO and NSC are ready to pursue a joint development of ”strip casting technology” (a technology to manufacture strip directory from molten steel without continuous casting and hot rolling process) on which both companies are world leaders. Researchers from both firms are also aiming for nine R&D projects， including measurement and control technology needed in high-quality steel product manufacturing， raw materials evaluation technology for cost reduction， energy/waste/by-product treatment technology for pollution prevention， and new material development.

Concurrently， engineers from POSCO and NSC steelworks would jointly carry out fourteen technical studies for cost reduction， productivity enhancement， quality improvement and pollution prevention throughout the entire manufacturing process from raw material input and the smelting process to final production.

In the raw materials sector， the two companies became members of Bolero (Bill Of Lading Electronic Registry Organization)， the international trade transmission system that certifies， exchanges and standardizes trade-related electronic documents in July this year. Joining Bolero has allowed fast， accurate exchange of information and related cost reduction through a perfect e-business relationship with the world*s biggest mineral companies， Australia*s Rio Tinto and BHP.

In overseas investments， POSCO and NSC intend to increase their capital shares in SUS (Siam United Steel (1995) Co.， Ltd. )， the largest cold-rolled steel manufacturer in Thailand， through increase in capital. With improvement of SUS* financial structure and active participation in management， it is expected that operational figures are likely to be in the black next year or later.

Since NSC and POSCO recognized that the progress in discussions on cooperation during the past year would result in cooperation to improve respective profitability， the two companies have reaffirmed their commitment to specific and broader discussions on cooperation.

POSCO and NSC have started studying to establish an industry-led， steel products e-commerce portal site based on both companies* brand power.

POSCO and NSC are also scrutinizing overseas joint development projects in Australia， Brazil and China， among others， to secure cost-effective yet high-quality raw materials.

There will also be close review of cooperation in the IT area， including POSCO*s new PI System.

POSCO and NSC will continue to manage their companies independently while maximizing synergy through possible close， sector-focused cooperation as described above. Both POSCO and NSC have high expectations that a strategic alliance will be an excellent way， which could be compared to business integration and consolidation， to bring about early， positive results of cooperation between companies with distinct traditions and cultures.