Market environment
and business development

The economic circumstances relevant for steel production in Europe, which were still more or less stable at the beginning of the calendar year 2012, have deteriorated dramatically over the course of the summer. It is especially the continuing weakness of the construction sector in recent years but also a certain—at least temporary—saturation in other industrial sectors (automobile production, white goods, and consumer goods industries) that are responsible for the fact that today, the EU steel industry shows clear signs of significant structural overcapacity. Weak demand and sinking capacity utilization are currently also governing the pricing of many steel products.

The Steel Division is attempting to evade this pressure as much as possible by focusing on customer segments, which have high demands with regard to innovation, technology, and quality. The trend in results and capacity utilization in the first six months of the business year 2012/13, and particularly in the second quarter, versus the industry competition shows that this strategy has been successful to some degree.

A look at the trend in the relevant customer industries makes the challenging competitive conditions in the first half of 2012/13 visible. While the European automobile and automotive supply industries have had to face declining production and sales figures in the volume segment and commercial vehicle sectors for several quarters, in the course of this past summer, the premium segment, which had hitherto been robust, was also forced to deal with a plunge in orders that was, at times, dramatic. The order backlog for the mechanical engineering industry, which was still significant at the beginning of the year, has meanwhile also been reduced. The white goods and electrical industries moved sideways rather than up and the construction and construction supply industries were still affected by the low levels of investment of the previous years due to the budget restrictions in the public sector.

Delays in the implementation of major projects in the line pipe segment, especially in Europe, Brazil, and in the Gulf of Mexico, are resulting in more intense competition, including the (high-quality) heavy plate segment. The situation is additionally complicated by the fact that, in this product segment, alternative energy projects are being increasingly postponed due to financing problems. In the past months, orders from the tube and section industries were also subdued, as is the case with incoming orders in the pre-processing segment and the Steel Service Center.

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