The market environment in the European steel industry has been subject to a hitherto unknown level of volatility in the past years, both in terms of price and quantity. This also impacted the Steel Division during the business year 2016/17.
However, the development of demand and prices was increasingly positive over the course of the business year. As the result of the position enjoyed by the division in sophisticated market niches, and with the greatest product-quality mix in the industry, it was possible to realize significant price increases over the four quarters. Strong levels of incoming orders in a series of product segments including hot-dip galvanized steel strip resulted in record production quantities.
On the procurement side, the past business year was characterized by strong price fluctuations, particularly for metallurgical coal. In November 2016 the price for metallurgical coal, the most important raw material in blast furnace steel production after iron ore, reached a price of around USD 300 a ton, rising from USD 80 a ton in a period of just a few months. In contrast, the price development of iron ore was much more moderate, although also marked by a continuing upwards trend through to the end of the business year.
In response to the high degree of volatility in the raw materials markets, in the past periods a contract portfolio has been established on the sales side which serves to spread the cost risks by varying contract durations and staggering starting points.
In comparison with the USA, Europe has responded far more slowly to the increasing flood of cheap steel on the global market, primarily from China, and has applied much lower import duties. However, the anti-dumping measures have made an impact over the business year 2016/17. After first subjecting imports of cold-rolled steel strip from China and Russia to duties, in October 2016 additional, preliminary import tariffs were placed on hot-rolled steel strip and heavy plate from China. Although this resulted in a significant fall in the quantity of flat steel imports from China, overall the level of steel imports into Europe remained high, the result of other countries simultaneously increasing their own delivery volumes of flat steel to Europe on a massive scale. However, in April 2017 the European Commission did not act to extend these import restrictions to cover hot-rolled steel strip from Brazil, China, Iran, Russia, Serbia, and Ukraine. In light of this, the strategic approach adopted by the Steel Division of orientation toward technologically-sophisticated customer segments, and offering a range of highest quality products, was once again very successful, ensuring voestalpine was largely unaffected by the strong downward pressure on prices suffered by standard products.
In the business year 2016/17 the performance of the key industry segments was primarily characterized by continued, robust demand from the automotive industry. Sales figures for passenger cars have risen strongly in Europe since 2015, and car registrations also continued to grow significantly in the calendar year 2016. Continuing high sales volumes during the first months of 2017 across all automotive segments indicate that this stable trend is likely to continue. Positive momentum also came from the white goods and mechanical engineering industries in 2016/17. There was also a slight improvement in demand from the construction industry over the course of the business year. The electrical industry gained considerable momentum, particularly in the second half of the business year.
In the energy sector the Heavy Plate business segment was able to secure a solid level of capacity utilization with the start of production for the “Nord Stream 2” line pipe contract during the second quarter of 2016/17. Deliveries of pressure-resistant and sour gas-resistant heavy plate for the deep-sea part of the project will continue through to the end of the business year 2017/18. Additionally, in the fourth quarter of 2016/17 orders were also acquired for further deep-sea projects in the Mediterranean. In contrast, demand for apparatus engineering and steel construction in the Heavy Plate business segment was only moderate.
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