As a leading quality supplier to the rail and turnout technology, wire, seamless tubes, and welding consumables sectors, during the business year 2016/17 the Metal Engineering Division succeeded in performing well in the consistently challenging market environment which characterizes these segments. This was in no small part due to rigorously implementing the strategy of offering its customers innovative products as well as tailor-made logistics solutions and services. The focus on customer-specific research projects, as well as investments in new and technologically-sophisticated facilities, and the ongoing exchange of know-how between the individual business segments, contribute to further differentiating the division from its competitors.
Following the predominantly attractive market environment of the past years which prevailed in Europe’s railway infrastructure sector (the core market for the Rail Technology business segment), these conditions deteriorated during the second half of the business year 2016/17. The positive market development in Europe in 2014 and 2015 was primarily due to the backlog in maintenance investments, and less the result of laying new lines. Over the course of the calendar year 2016 the level of maintenance activities in the European rail network once more returned to a much more moderate level. In the oil-financed Gulf States and the mining countries of Brazil, Australia, and South Africa, investments in railway infrastructure also fell below that of previous years, due, among other factors, to low oil and raw materials prices. In Brazil, however, the order situation improved slightly towards the end of the business year with the securing of contracts for several individual projects.
As a globally-active division with over 40 production and sales sites, the Turnout Systems business segment was largely able to compensate for the weakness in the European market. Demand for high-speed lines in China in particular was at a very attractive level during the past business year. In contrast, demand for turnouts in the US heavy-haul transport market fell significantly, due to comparatively low freight transport volumes in 2016. Bureaucratic hurdles in India in 2015/16 resulted in project delays, whereas an increased number of contracts were recorded in 2016/17.
For the Wire Technology business segment, which manufactures high quality rod wire, drawn wire, flat and shaped wire, as well as ultra-high-tensile fine wire, the business year 2016/17 marked a turning point; commissioning of the new wire rod mill is almost complete so that the world’s most modern facility of its type will be fully operational during the business year 2017/18. In terms of demand, the mood in the automotive industry remained positive during the business year 2016/17. In addition, there was a slight market upswing in special wires for the oil and natural gas industries during the second half of the business year.
There was also a significant uptick in orders from this sector for the Seamless Tubes business segment, leading to an improved performance in the second half of the business year. As well as increased oil shale mining activity in the oil and gas industry in the USA, the implementation of new and innovative product solutions designed to optimize the exploration process was a significant factor in the growing upwards trend. However, improved capacity utilization in the industry was initially reflected only in an increase in volumes, not a rise in prices; it was only toward the end of the business year that the rising costs of iron ore and coke could be gradually reflected in higher prices. The measures the US government plans to protect its national steel sector are not yet clear, but continue to entail significant volatility for the US business.
The market environment faced by the Welding Consumables business segment continued to be challenging during the past business year. It was primarily the energy sector which suffered continuing market weakness. It terms of the key sales regions, market conditions in Asia, and especially China, were significantly more attractive than in Europe and the USA; in contrast, no notable revival of demand is expected in South America for the time being. Conversely, the program of restructuring and diversification introduced and partly implemented in past years has already contributed to a significant improvement in earnings.