SHOWA DENKO CSR REPORT 2009 �

Kawasaki Plant installs GHG decomposition unit

In March 2009, the Kawasaki Plant installed and began test r u n s o f a g r e e n h o u s e g a s decomposition unit.

Until now, hydrofluorocarbons a n d o t h e r a l t e r n a t i v e s t o chlorofluorocarbons have partially been emitted during production and filling processes at this plant. In response, the plant has already implemented measures to reduce emissions of these greenhouse g a s e s . To a c h i e v e f u r t h e r reductions, the Plant has installed additional facilities that recover and decompose these gases by combustion. These facilities can eliminate almost all emissions of CFC-alternative gases at the plant.

Reducing CO2 emissions by shifting to a new fuel in the graphite electrode production process

In May 2009, the Omachi Plant completed a shift from heavy oil to liquefied natural gas (LNG).

The Omachi Plant produces the graphite electrodes used in recycling steel. Graphit ization furnaces, which comprise the key part of this process, are powered by CO2-free electr icity from a hydroelectric power plant owned by Showa Denko. This shift from heavy oil to LNG as the fuel used in the baking process offers the potential for continuous 10,000-ton annual reductions in CO2 emissions.

Installing new cracking furnaces to reduce CO2 emissions

In 2008, the Oita Petrochemical Complex began install ing new cracking furnaces, with construction slated for completion in 2010.

The seven existing cracking furnaces for naphtha (a material used in e thy lene p lants ) w i l l be d ismant led and rep laced with two high-efficiency, state-of- the-ar t cracking furnaces. (Each new furnace will produce 100,000 tons of ethylene a year.) Additionally, we will increase use of heat generated by furnaces and modify the distillation system to further enhance energy efficiency. Combined, these efforts will increase energy efficiency by approximately 5.3% and reduce CO2 emissions by 59,000 tons a year.

Are the Kyoto Protocol targets achievable?

We are now in the second year of the commitment period (2008 through 2012) specified by the Kyoto Protocol. Barack Obama, the president of the United States, has announced the ambitious target of reducing U.S. greenhouse gas emissions by 83% from 1990 levels by 2050. In addition, a global agreement for the period beyond the commitment period under the Kyoto Protocol is expected to be reached at the 15th United Nations Climate Change Conference (COP15) in Copenhagen at the end of the year. Against this backdrop, Japan’s greenhouse gas emissions in 2007 totaled 1,374 million tons (CO2 equivalent), 9.0% higher than the total emissions of 1,261 million tons for the reference year (1990) under the Kyoto Protocol. Japan is required to reduce greenhouse gas emissions by 6% from the levels of the reference year during the Kyoto Protocol commitment period. This means that even after subtracting a forest absorption value of 3.8% and a Kyoto Mechanism value of 1.6% (a reduction achieved, for example, through emissions trading), the nation must cut emissions by another 9.6%.

A close look at the increase in emissions by sector in Japan shows that energy-derived CO2 emissions represent a major problem. Although CO2 volumes released by the manufacturing industry, such as those from factories, declined, the volumes discharged by all other sectors, including the transportation segment (automobiles, ships, etc.), the commercial and service sectors (retail, services, offices, etc.), and the household sector, increased significantly from the reference year (according to data released by the Ministry of the Environment in 2009). Compared to last year, while emissions from the transportation sector decreased slightly, those from other sectors have increased, with household-sector emissions in particular increasing by 8.4%. In response, the Energy Conservation Law has been revised to set a goal of even greater reductions in CO2 emissions, incorporating activities such as reporting by individual businesses, setting benchmarks, and expanding the range of sectors covered by the Law.

Efforts in response to climate change and reductions in greenhouse gas emissions will clearly become even

more important aspects of corporate business strategies in the future.

Responsibility for greenhouse gas emissions equivalent to those of 1.4 million people

The Showa Denko Group uses fossil fuels as raw materials and fuels to produce petrochemicals and organic/inorganic chemicals and to fabricate aluminum. The Group discharged approximately 3.1 million tons of greenhouse gases in 2008. Converted into carbon dioxide emissions, this is equivalent to the amount discharged by some 1.4 million people (based on data from the Team Minus 6% website).

We are moving forward with a mult i-faceted promotion of greenhouse gas emissions reduction efforts. In addition to reducing business-related greenhouse gas emissions (through efforts including the elimination of emissions of HFCs and other greenhouse gases at Kawasaki), reducing waste, improving distribution efficiency (through efforts such as implementing a modal shift at Kawasaki), and conserving energy in offices, we are seeking to raise employee awareness of CO2-emissions reductions in the homes.

Keeping our promiseLast year, in addition to a unit energy consumption

target, the Showa Denko Group set a target of 6% for cuts in greenhouse gas emissions vs. levels for the reference year (1990) over the Kyoto Protocol commit-ment period. We also established a long-term roadmap to reduce greenhouse gas emissions by 50% from current levels and began preparing an action plan with a strategic focus on thorough energy conservation in current manufacturing methods and radical shifts in production technologies as well as raw materials and fuels.

In 2008, the Group achieved a 7% reduction from reference year levels, surpassing the 6% reduction goals. In the 2008-2012 period, we expect to achieve the goal of a 6% reduction in greenhouse gas (GHG) emissions without resorting to emissions trading. The goal will be achieved through such efforts as reductions in GHGs other than carbon dioxide and improvement in the efficiency of the naphtha cracking furnaces at our petrochemical complex.

Showa Denko Group’s Promise: 6% reductions from 1990 greenhouse gas emissions levelsIn full awareness of the environmental impact of our business activities, the Showa Denko Group has set a greenhouse gas emissions reduction target of 6% for the commitment period (2008 through 2012) under the Kyoto Protocol and is moving forward with specific efforts to achieve this target.

Naphtha cracking furnaces at the Oita Complex LNG storage facilities at the Omachi Plant The GHG decomposition unit at the Kawasaki Plant

SHOWA DENKO CSR REPORT 2009�

Achieving a Sustainable Society

Case1 Case2 Case3Oita Complex Omachi Plant Kawasaki Plant

Showa Denko Group’s Efforts

1500

2000

2500

3000

3500

41.04

1990

(reference year)

2006 2007 2008

-0%-3%

-7%

2008～2012Kyoto Protocol

commitment period

-6%

-25%

-40%

0

2,000

1,750

2,500

2,250

3,000

2,750

3,500

3,250

Emissions(kt-CO2)

Guidepost2020

Guidepost(Fiscal Year)2030

Environmental efforts ❶

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¢ GHG emissions by the Showa Denko Group

(For Group company scope, see page 50)

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Research themes for developing next-generation products

At the Showa Denko Group, we are conducting R&D activities based on what we see as our mission: to contribute to the sound growth of society by developing new products and new technologies. To

fulfill our social responsibilities in this area, we see the development of environment-friendly products and processes as one of the most crucial issues. Needless to say, all stakeholders involved in our corporate activities have a strong interest in technological developments related to energy and the environment, including

reduc ing env i ronmenta l impact and addressing

resource depletion, to

achieve both economic growth and environmental protection and to build a sustainable society worldwide.

In response, we at the Showa Denko Group seek to contribute to the sound growth of society by creating and providing innovative technologies in the fields of energy conservation and environmental protection in three target markets—electronics, automotive parts and personal care/environmental goods—by fully demonstrating the advantages of our unique position: a chemical company with strengths in inorganic chemical and metal technologies.

The Showa Denko Group’s strengths are based on the rich stock of inorganic/metal and organic chemical technologies, which have supported the development of many individualized products, and our capability to create innovative products through interconnections of these technologies. Our achievements in the area of environment-friendly products are typified by our development of visible-light-responsive photocatalysts; ultrabright LEDs and vapor-grown carbon nanofiber “VGCF™” for energy-saving applications; and ECOANN™ ammonia made from used plastic.

We believe our individualized technologies that have supported such innovations will continue to remain our strengths in developing new technologies in the areas of energy conservation and environmental protection.

The Showa Denko Group contributes to the sound growth of society by developing environment-friendly products.As a company seeking to contribute to the good of society, the Showa Denko Group gives high priority to the development of environment-friendly products and processes. Here we introduce some of the innovative and environment-friendly products we have developed using our technological strengths.

The company’s plant in Kawasaki recovers hydrogen from used plastic and utilizes it as a raw material for producing ammonia. This process enables a 35% reduction in CO2 emissions compared with conventional methods for ammonia production from crude gasoline (naphtha). CO2 generated from recycled plastic is also captured and recycled. Showa Denko sells this ammonia under the trade name of ECOANN™.

Ammonia is used not only as a raw material for chemical fiber and fertilizer but also as a reducing agent for nitrogen oxides emitted from thermal power plants and factories, providing a cleaner environment.

ECOANN™ has been certified for green purchasing by six electric power companies in Japan.

Showa Denko produces ammonia based on used plastic

Plastic Chemicals Recycling Plant.

Enviro

nmental E

fforts

SHOWA DENKO CSR REPORT 2009�

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Produce Ammonia by recycling waste plasticCrush and Knead!Gasify plastic

LowtemperatureGasi�cation

furnace

RPFstockyard

Metal recycle

Metal and Glass

Raw material of road

Raw material of caustic soda

Slag

Salt

Gas cleaner

Recycled waste plastic

Crusher

Metal separator

Extruder

Refuse Plastic Fuel

Reformfor

recycle

Crushplastics

Removemetals

Form plastics

HightemperatureGasi�cation

furnace

Ammonia is usedin many ways!

Produceammonia!

Ammoniacleans the air

Recycled wasteplastic

Ammonia

Produced byHydrogen and

nitrogen

Sodium hydroxide

Chlorine

Sulfur

Desulfurization system

CO Conversion system

Compositegas

Electrolysis system

Ammonia plantday

Clearresin

Acrylic fiber

Fertilizer

Nylon

Glue

Denitrationmaterial

day

Clean up the gas fromfactory and power plant

Photo: (From left) Yo Imaizumi, Mariko Inoue, Toshimaru Maeda, and Hiroshi Ishizuka Plastic Chemicals Recycling Promotional Office, Kawasaki Plant, Chemicals Division

Kenji TsukamotoDirector and Corporate Officer;

Chief Technology OfficerShowa Denko K.K.

ECOANN™

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Special Feature Achieving a Sustainable Society

High-performance liquid chromatography (HPLC) is used to separate, identify, and quantify the amounts of ingredients dissolved in liquids. The technique is widely used, including in quality control of water in water supplies and rivers, analysis of food ingredients, industrial quality control, and clinical diagnoses based on analysis of tissue and body fluids. Able to detect trace amounts of harmful heavy metals or carcinogenic halogen oxide, HPLC is also used to analyze substances found in, and to maintain the health of, our environment.

At the same time, HPLC often uses organic solvents. For this reason, Showa Denko is working to reduce the quantities of organic solvents used by HPLC analysis, which can lead to environmental pollution, by reducing the size of HPLC columns* and developing HPLC columns capable of quicker analysis.

Showa Denko LEDs offer low energy consumption, long life, and the capacity to fine-control light wavelengths for specific applications. These characteristics help conserve energy across a wide range of product applications, including LCD backlight for laptop computers and TVs and LED lighting seen in stores.

We recently developed red LEDs based on this technology to generate light at optimal wavelengths for plant growth. We expect these red LEDs will be used at plant factories, where vegetables and other plants are grown indoors under artificial lighting. This type of cultivation provides several key advantages, including stable production regardless of the weather, multiple cropping a year, and elimination of agricultural chemicals due to the fully controlled environment. These advantages should lead to rapid growth in agricultural production.

Future use of LEDs at plant factories will help achieve an environment-friendly society through the safe, low-cost supply of agricultural

products.

High-performance HPLC columnsLight-emitting diodes

Reducing environmental pollution through high performance and compact size

Shodex™ high-performance HPLC columnsCultivation experiment at a plant factory

* HPLC columnThis crucial HPLC component is filled with special fine particles. By passing a liquid through the column, you can separate various substances contained in the liquid.

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Showa Denko K.K. and Showa Denko Carbon, Inc., of the United States, manufacture graphite* electrodes, contributing to the protection of the environment by recycling scrap iron.

Graphite electrodes are used in electric steelmaking furnaces. Scrap iron is melted in these furnaces for recycling into steel. Temperatures inside the furnace reach 1,600°C, and the temperature at the tip of the electrode 3,000°C or higher. Graphite is the only material that can be used in such a severe environment. This process dramatically cuts both energy

use and CO2 emissions compared to processes that form steel from iron ore by the blast-furnace method.

Today, roughly 30% of the world’s crude steel is produced from scrap iron using electric steelmaking furnaces.

SuperEnd™ lightweight aluminum-can end produced by Showa Aluminum Can Corporation cuts weight based on improvements made in partnership with Asahi Breweries, Ltd. They offer increased compressive strength based on a unique shape while reducing end surface area and thickness. Compared to existing can ends in a conventional size known as 206 diameter,*1 each SuperEnd™ is approximately 9% lighter, which reduces greenhouse-gas emissions from production processes and transportation by roughly 6,000 tons of CO2 per year.

In recognition of these environmental characteristics, SuperEnd™ was awarded the appropriate packaging award in the Japan Packaging Contest 2008.*2

Graphite electrodesSuperEnd™Contributing to environmental protection through recycling of scrap iron

Reducing greenhouse-gas emissions by cutting weight

Graphite electrodesSuperEnd™

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* GraphiteMade by pulverizing and graphitizing needle coke.

*1 206 diameterIndustry name for size of can ends in current use. (approximately 6 cm in diameter)

*2 Japan Packaging Contest 2008 appropriate packaging awardThe most significant competition for Japan’s packaging industry, held to encourage the development and use of superior packages and packaging technologies. The appropriate packaging award is conferred on packaging that offers functionality addressing environmental concerns and consumer demand, realizing resource conservation, energy savings, and other achievements.

Lightweight aluminum-can end

Motonori UsukiMarketing Department

Electronic Materials Division

Kuniko IgarashiSeparation & Refining Business Group

Specialty Chemicals DepartmentChemicals Division

Junichi SatoResearch & Development Dept.

Technical CenterShowa Aluminum Can Corporation

Atsushi IwataManufacturing Department

Omachi PlantCarbons Division

Shodex™From energy conservation to stable production of agricultural products

LED

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Production activities at factories and other facilities release as exhaust large volumes of CO2 and heat into the atmosphere. Showa Denko’s industrial T-coil™, a compact waste heat recovery equipment, reduces both energy consumption and CO2 emissions by recovering energy that would otherwise be wasted. By

enabling the recovery of at least 50% of exhaust heat energy, this device makes it possible to achieve massive reductions in fuel consumption. Recently, it has also been used to eliminate harmful gases, including volatile organic compounds generated by manufacturing processes.

Eco-friendly vehicles such as hybrid and electric vehicles are expected to play a major role in the automotive future. Batteries are core components in such vehicles, and improving battery performance will be essential to improving the performance of eco-friendly vehicles.

SCMG™ graphite anode material, developed using the graphitization technologies accumulated by Showa Denko over many years, has been judged to be the optimal anode material for use in eco-friendly vehicles, capable of operating even under conditions of heavy electrical current and remaining usable for a long period of time even under conditions of repeated charge and discharge. Our goal is to protect the earth’s environment by

supplying key materials used to build the coming generations of eco-friendly vehicles.

T–coil™

SCMG™Graphite anode material

Industrial waste heat recovery equipment

Massive reductions in fuel consumption through efficient energy use

The heart of eco-friendly vehicles representing the mainstay of future automotive transportation

Graphite anode material

Mechanism of T-coil™

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Photocatalysts represent a technology that harnesses light to decompose toxic volatile organic compounds and nitrogen oxide to render them harmless. Earlier photocatalysts, which could only be used with ultraviolet rays, were effective only outdoors, where ultraviolet radiation is plentiful. The visible-light photocatalysts currently being developed at Showa Titanium Co., Ltd. can use light energy even from artificial fluorescent lighting, which contains few ultraviolet rays, and can be used indoors. We believe these technologies will significantly reduce the harmful potential of organic solvents and other substances found in adhesives and coatings used in buildings and furniture, which cause the sick house syndrome. We are also hopeful that they may help check viruses

such as influenza and are currently undertaking verification studies.

Photocatalysts are expected to evolve into a technology that helps protect our way of life. The Showa Denko Group is currently working with national research institutions to refine this technology.

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Showa Denko produces rare earth magnetic alloys for rare earth* magnets. Rare earth magnets are known for their very strong magnetic force. With their

remarkable efficiency, motors and generators incorporating these magnets help conserve energy across a wide range of

applications, including hybrid vehicles, home appliances (air-conditioners and washing machines), and mobile phones. Use of these materials is also expected to grow

in environmentally-friendly fields such as wind power generation and trains.

Rare earth magnets occur in two types: neodymium magnets (consisting of neodymium, dysprosium, iron, and boron) and samarium-cobalt magnets (consisting of samarium and cobalt). Showa Denko is currently working to develop new applications for alloys manufactured by its proprietary methods.

Rare earth magnetic alloysUsed widely to conserve energy, from industrial use to consumer products

Rare earth magnetic alloys

* Rare earthA term referring to 17 elements, including neodymium and lanthanum, which demonstrate unique features not found in other metals due to a particular configuration of electrons orbiting around their atomic nuclei.

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The energy of light protects our way of life

Antifouling tests involving traditional photocatalysts: Soiling is applied to the center of the sample, which is then left outdoors. The soiling on the right-hand side, coated with a coating containing photocatalysts, degrades rapidly and is easily washed off.

No coating NTB™ coating

Masayuki Kishi (left) and Yuuichi IijimaE & I Heat Exchanger Design Group

Design DepartmentHeat Exchanger Division

Chiaki SotowaR & D Group II

Fine Carbon Department

Yasushi KurodaR & D Group

Showa Titanium Co., Ltd.

Kenichiro NakajimaTechnology Group

Production & Technology Control DepartmentRare Earth Division

Heat pipe

Air supplyExhaust

Transfer of heat energy

Release of heat energyContainer

Working fluid

Intake of heat energyExhaust

Condensation

Air supplyPartition

Liquid

Heat flow

Steam

Vaporization

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Showa Denko has chosen to commercialize NPAC, an environmentally-friendly solvent that can be used for ink utilized in special gravure printing processes. Sales of this product are slated to begin in early 2010.

While solvents used for ink utilized in special gravure printing processes use large amounts of organic solvents*1 such as toluene, NPAC is expected to serve as a highly safe substitute solvent. In addition, special gravure inks suitable for the recovery of volatile organic solvents are being examined in response to amendments of the Air Pollution Control Law. NPAC is attracting growing attention as a key solvent in such applications.

Additional NPAC demand is also expected to emerge for use as an extraction solvent for adhesives and optical films.*2

n-Propyl acetate

A next-generation solvent attracting growing attention for its safety

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Gravure printer

Our water supplies are essential to daily life. Water is rendered safe to drink through various processes at water purification plants. Sodium hypochlorite, an inorganic chemical* essential to purification and sterilization in water processing, is produced through a reaction of chlorine and caustic soda, which is derived from the electrolysis of salt water.

In recent years, water safety standards have become stricter to ensure the safety of the water supply. Jiax™-S1 sodium hypochlorite, with decreased levels of chloric acid and bromic acid to meet

these new standards, went on sale in 2004, and sales volumes have risen year after year since then.

The JWWA logo seen on devices such as water faucets and shower heads in Japan certifies that the device meets standards established by the Ministry of Health, Labour and Welfare. Only products that have passed inspections by the

Japan Water Works Association can use this logo. Jiax™ was first among its competitors to achieve this certification.

Jiax™ for water–supply useProtecting the safety of our essential water supplies

Used for Tokyo tap water

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Bionolle™Biodegradable plasticAn environmentally-friendly plastic that harnesses the power of microorganisms

Biodegradable plastic are plastics characterized by low environmental impact, degrading over time into water and CO2 through microbial action.

In addition to environmental performance, Bionolle™ from Showa Highpolymer Co., Ltd. also provides the ease of processing into films and is widely used as an agricultural film. Plastic sheets are placed on fields to aid in crop cultivation—for example, for fighting frost. However, this leads to the problem of parts of sheets remaining in the fields after the

sheets are removed. Bionolle™ goes a long way toward solving this problem.

The various uses for Bionolle™ have grown steadily. Current applications include use as a packing material for OA equipment. We plan to develop other applications for this material as part of efforts to protect the environment.

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Showa Eco–Pipe™Transforming PET plastic bottles into high-performance drain and ventilation pipes for homes

Showa Eco-Pipe™

Showa Eco-Pipe™ from Showa Denko Kenzai K.K. is a drain and ventilation pipe for homes made from PET resin obtained from used PET plastic bottles. Using recycled PET resin instead of crude oil consumes approximately one-third the energy compared to PVC pipes and reduces emissions of CO2 by approximately 800 kg per ton of products

manufactured, compared to PVC pipes.Not just environmentally-friendly but stronger

at lower temperatures than PVC pipes, Showa Eco-Pipe™ can be connected using adhesives, just like PVC pipes. Its main applications are sewer and rainwater drains as well as ventilation conduits. Showa Eco-Pipe™ has been certified to use the Eco Mark as a recycled product with a low environmental impact.

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AgriAce™ biodegradable mulch film using Bionolle™

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* Inorganic chemicalsA general term that refers to chemicals made from inorganic substances

(i.e., chemicals that do not contain carbon atoms in their structures).

*1 Organic solventsThe term “solvents” refer to liquids used to dissolve various substances. Organic solvents are organic compounds that occur in liquid form at room temperature, used to dissolve substances. Since many of these are harmful to the environment or the human body, research efforts are conducted to replace these with less toxic substances, to use water, or to eliminate solvents altogether.

*2 Optical filmsThe term refers to films that provide various effects by permitting the passage of, reflecting, or absorbing light rays, made by forming a film from high-polymer materials such as plastics. In recent years, demand for these films has grown dramatically, with growing use in display devices such as LCDs and plasma displays.

Takayuki NishijimaPlanning Office,

Petrochemicals Sector

Yasushi IchikawaBionolle Department

New Polymer Materials DivisionShowa Highpolymer Co.,Ltd

Yuichi WatanabeDevelopment Group

Keipla Marketing DepartmentShowa Denko Kenzai K.K.

Toshio IijimaInorganic Chemicals Group

Gases & Chemicals DepartmentChemicals Division

NPAC

JWWA logo