Market environment

Development of the global economy

With the outbreak of the 2008 financial and economic crisis, the global economy entered into a generally unstable phase that has also been very inconsistent with regard to the individual economic regions. In the past business year, the voestalpine Group could not escape the effects of this environment full of ongoing challenges.

While in the first phase of the business year 2011/12, a feeling of optimism prevailed in most of the major customer industries and regions with regard to the economy, by the fall of 2011, the markets were signaling increasing nervousness and heightened caution both with regard to economic expectations and general order patterns.

With the first signs of a slight cooling of the momentum in some important growth regions, particularly China and Brazil, which had been long expected, uncertainty regarding the further development of the global economy rose dramatically even though the growth rate in both countries is still comparatively high. At the same time, the economy in North America performed better than anticipated, while Europe’s overall economic situation—with the exception of a few, export-oriented countries—became weaker in the course of the year and trended most recently toward recession.

The situation was complicated by the fact that Europe’s political leaders have not been able to stabilize Greece’s economy and, at the same time, the debt crisis spread increasingly to Italy and especially Spain, a factor that additionally aggravated the economic and financial instability throughout Europe.

Against this backdrop, the real economy in Europe nevertheless was comparatively robust for the major part of the year due to the stable, positive development in most of the Western and Northern European economies.

Development in the most important customer industries

The performance of the customer industries that are particularly important for the voestalpine Group was mostly solid until late summer of 2011 when a very inconsistent development began.

Demand in the European automobile industry, which is the largest customer segment, responsible for about one third of the Group’s revenue, was still stable in the first half of the business year 2011/12. While the premium automobile manufacturers have thus far remained unaffected by the consumer restraint that has been noticeable since the fall of 2011, a significant erosion of demand has been evident in the volume segment during the course of the year so that capacity utilization in some automobile plants has been declining.

Performance in the traditional energy sector (oil, gas, water) was stable at a high level in the business year 2011/12, while the trend in the alternative energies (wind, solar) segment, which had been positive for years, came to a standstill.

The mechanical engineering sector, which is traditionally strongly export-driven, performed solidly throughout the course of the year; the performance of the aviation industry, whose share in revenue generation is still small, but which is growing in importance in the Group’s high-tech segment, had a similar trajectory.

The development in the white goods and consumer goods industries, however, was less satisfactory, with these industries being unable to continue the previous year’s positive trend with the same degree of momentum; as compared to other sectors, these two segments were more seriously impacted by the economic slowdown during the year.

The situation of the construction industry is stable, but it has remained unchanged at a moderate level. Initial signs of a recovery in Eastern Europe in the early part of the business year proved to be short-lived. In any case, there is no expectation of a sustained structural recovery, particularly due to the restrictions imposed by the strained situation of public finances in many European countries.

In the railway infrastructure segment, demand for turnouts and special rails remained stable at a good level throughout the business year 2011/12. The standard rail segment, however, has come under heavy pressure Europe-wide and its development has been negative due to growing capacities, falling prices, and extremely aggressive competition. As the prospects are not promising, even in the long term, the voestalpine Group decided in the spring of 2012 to withdraw from this segment. Concurrently, international expansion of our leading position in the special rails sector is being continued.

The impact of the economic environment in the business year 2011/12 on the individual divisions of the voestalpine Group was markedly different. While the Special Steel Division, the Metal Engineering Division (until March 31, 2012 Railway Systems Division), the Profilform Division, and the Automotive Division, which are strongly oriented toward downstream manufacturing, experienced only the customary seasonal fluctuations and were able to stay at least at their previous year’s level both with regard to revenue and profit, the steep rise in volatility with regard to volumes, prices, and raw materials costs in the classic steel sector inevitably had an effect on the Steel Division.

Development of the steel industry

After an increase in the worldwide crude steel production by 7% to 1,491 million tons in the calendar year 2011, which was due exclusively to strong growth in the demand for steel outside of Europe, production in the first calendar quarter 2012 remained constant—including globally—for the first time in quite a while.

On one hand, this development reflects the current uncertainty regarding the extent of continued growth of some of the major Asian economies (China, Korea, Japan) and, on the other, it mirrors the demand in Europe that has been considerably reduced since the fall of 2011, resulting in diminishing capacity utilization in most of Europe’s steel plants. A number of manufacturers in the commodity segment tried to counter this trend and stabilize their own production by provoking a heated price war on the spot market, but this attempt remained unsuccessful. This even exacerbated the negative price spiral, which had begun in the fall of 2011 with declining raw materials prices and customers who demanded corresponding discounts.

Only North America had a positive development throughout 2011, remaining unaffected by the global turbulence; due to the economic momentum in the USA, the North American steel industry was able to retain its high growth rates of the previous year even in early 2012.

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