While the Metal Engineering Division generates about two-thirds of its revenue in the railway infrastructure and oil and gas customer segments, unlike almost all other industries, prices in these sectors were largely subdued in the business year 2017/18. At the end of 2016 already, when a clear upward trend began in most economic sectors in Europe, demand in the railway infrastructure sector, with the exception of China, developed only moderately and hence distinctly from the economic euphoria that was setting in elsewhere. Towards the end of the business year 2017/18, however, there were first signs of a recovery in demand, albeit in a market environment that remains highly competitive.
Against this backdrop, the Rail Technology business segment in particular was confronted with challenging conditions in the business year 2017/18, especially in Europe. Overall, capacity utilization was satisfactory, but there was strong competition with respect to rail project pricing. There was also very little momentum in European rail suppliers’ traditional export markets. Due to low raw material prices, the level of logistics activity in the mining regions of Brazil and South Africa was fairly modest. In the Gulf States, which strongly depend on crude oil, investments in the railway infrastructure were greatly reduced.
The performance of the Turnout Systems business segment was much more positive, partially due to its expanded global market presence, but also as a positive consequence of its leading technological and market position in the demanding turnout sector. Furthermore, a weakening of demand in individual regions was offset by other volume increases—for example, in connection with high-speed lines in China. The demand for turnouts for heavy-haul transports in the USA, which fell sharply in 2016 due to low freight transport volumes, showed the first signs of recovering in 2017.
In the business year 2017/18, the Wire Technology business segment benefited from excellent demand momentum, especially in the automotive industry. The new, state-of-the-art, fully digitalized wire rod mill in Leoben/Donawitz, Austria, which went into full operation in the first half of the business year following a slightly longer start-up phase, was running at full capacity in the second half of the year. Now, both external and internal wire rod customers have access to pre-material that meets all quality requirements for wire products. As a result of challenging market conditions, which continue unabated, the ultra high-strength fine wire product segment, which primarily serves the solar and photovoltaics industry, had to recognize EUR 15 million in impairment losses on property, plant and equipment in the first half of 2017/18, which had a corresponding negative one-time effect on earnings.
The Tubulars (seamless tubes) business segment, which manufactures primarily products for the oil and gas sector, benefited in the business year 2017/18 from the accelerating recovery in drilling activities in the United States. As a result, the production site in Kindberg, Austria, saw full capacity utilization of the units throughout the business year 2017/18, but prices improved only gradually, mainly due to exchange rate effects. Order activity in the Gulf States, which was restrained in the first half of the year, improved in the second half, though here, too, the pricing situation remained a challenge. Demand for industrial pipes, such as those used in crane and tunnel construction or in the commercial vehicle industry among others, was solid throughout the year thanks to the economic climate.
The Welding Consumables business segment, which is also highly active in the energy segment, also saw good capacity utilization in 2017/18, but simultaneously faced high price competition. In the interest of alleviating this pressure, efforts are currently being stepped up to gain a foothold in previously less developed industry segments, while at the same time cost measures are again being intensified.