As a consequence of the global economic downturn in the fall of 2008, economic development at the beginning of the business year 2009/10 was characterized by a dramatic slump in demand in almost all of the voestalpine Group’s important markets and industries. It was only during the summer of 2009 that the downward trend began to bottom out and the first indications of a turnaround could be perceived in some customer segments.
Whilst growth rates also declined in the emerging economies during 2009 (although still managing to remain positive), the pressure of the slump in the mature economies, especially the USA and Europe, resulted in a fall in global gross domestic product (GDP).
Across the economic regions the incipient recovery varied significantly in terms of extent and speed: Whereas the upward trend which emerged from spring 2009 onwards in the emerging markets (and especially China) was generated by a brisk internal market, stable exports, the rapid lowering of inventory levels and the sustained inflow of capital to these regions, the USA and Europe needed a more substantial economic stimulus program, financed by the public purse and of a dimension hitherto unseen, in order to initiate a turnaround by investing in infrastructure and specific consumer incentives in certain industries (primarily premiums for purchasing new cars). However, compared to the emerging economies, the turnaround in the mature economies came much later and was much weaker.
In the USA it was mainly the sharp rise in unemployment and the increasing savings rate which had a negative effect on private consumption and consequently on the upswing. In Europe, however, it was primarily the increasing borrowing by individual countries which served as the main obstacle to a sustainable recovery. This also resulted in a significant devaluation of the euro against the US dollar—the euro exchange rate was around USD 1.50 in the fall of 2009 but is currently 15% to 20% below this mark. The austerity programs hurriedly introduced by several European countries over the past weeks will be a test for recovery in Europe. It remains to be seen to which extent they can be compensated for by an increase in exports resulting from the devaluation of the euro.
Developments in the most important customer industries
Development across the customer industries also mirrors the significant variations between the individual regions. The sole shared factor is the, at least partial, restocking of low inventory levels in almost all industries. Even so, despite the threat of future increases in raw material prices, there is no evidence of stockpiling, which indicates that many companies still reinforce their liquidity management.
Production levels in the automotive industry still are at around 80% of pre-crisis levels. However, after the recovery in the small and compact car segment (the primary beneficiaries of the the previous year’s premiums), there was a perceptible increase in demand for mid-sized and large car classes from fall 2009 onwards. One of the trends of the past years has been reversed in that automotive sales in Western Europe are recovering significantly better than in Eastern Europe. The main driver behind the global upswing in this segment remains China. The commercial vehicle industry has been significantly worse hit by the crisis—clear signs of recovery in this segment only emerged towards the end of the business year 2009/10 and capacity utilization is currently only at around 40% of pre-crisis levels.
As a result of both the financial and economic crisis and the fall in oil prices, there were also extensive hold-ups in conventional energy sector projects, bringing massive slumps in demand and falling prices. An incremental recovery, with growing order and price levels, only began here in the spring of 2010. In contrast, developments in the renewable energies sector (especially solar power and wind energy) were much more positive, largely as a consequence of global public investment programs.
From fall 2009 onwards, the railway infrastructure sector, which had profited from a positive market environment and a strong backlog of orders during the first half of 2009/10, suffered from numerous project postponements (the consequence of increasing budget restrictions, especially in Eastern European countries) as well as a significant increase in competition associated with a significant fall in prices for new tenders.
Developments in the white goods and consumer goods industries were largely unspectacular but continued at a thoroughly satisfactory level. In contrast, demand in the building and building supply industries and the aviation industry remained sluggish. The mechanical engineering industry has started to grow since the beginning of 2010.
Development of the steel industry
Although some economic regions were spared, in 2009 the global financial and economic crisis resulted in an 8.2% drop in steel production worldwide, from 1.33 billion tons to 1.22 billion tons. Whereas China was even able to increase production by a further 13.5% (from 500.3 million tons to 567.8 million tons) to reach a new record high (i.e., now representing almost half of worldwide steel production), drastic cuts in production were introduced in Europe (–29.7%) and the USA (–36.4%) in response to the huge fall in orders across all customer segments.
The rapid and widespread measures of temporarily shutting down blast furnaces and reducing production led to a fall in production of almost 50% in the European steel industry (EU 27) from October to December 2008 alone. Production remained at this reduced level until the late summer of 2009.
Only in September 2009 did the incipient recovery in demand in key customer segments, primarily the automotive industry, lead to a significant increase in European steel production, from 31.5 million tons (first quarter of the voestalpine business year 2009/10) to 40.8 million tons (third quarter 2009/10). However, the rapid recommissioning of temporarily shut down capacity at the end of 2009 led to short-term competitive pricing, but this was of limited duration as signs of massive increases in raw material prices began to emerge from spring 2010 onwards.
During the last quarter of the business year 2009/10 almost all of the blast furnaces which had been temporarily shut down were recommissioned, and capacity utilization rose to around 85% of pre-crisis levels. In the business year 2009/10, steel production sites belonging to the voestalpine Group enjoyed significantly better capacity utilization levels than the European industry average.
