Market environment
and business development*

The economic environment of the Special Steel Division in the first nine months of the current business year lost considerable momentum compared with the previous year. As a result, the number of incoming orders declined, especially from the mechanical engineering industry and from the oil and natural gas exploration sector. The weakening of the mechanical engineering industry was rooted in a lack of demand from China and Russia, two of its important export markets. Because the oil price has stayed very low, the use of special steel in the oil and natural gas sectors will continue to be significantly below that of recent years due to reduced exploration and drilling activity. Although the tool steel segment also experienced growing price pressure on standard products in the last months of the 2015 calendar year, its situation has generally been far more stable, as the capacity freed by lower demand for special steel in the oil and natural gas and mechanical engineering sectors has been used increasingly for the production of tool steel.

In the first three quarters of the business year 2015/16, the picture varied widely from region to region. Despite stable development in the automobile and consumer goods industries, the fall of 2015 was more difficult in Europe than expected. There is still no sign of a recovery in the energy engineering industry (power plants); the mechanical engineering industry has also remained below expectations. The low level of investment activity in the oil and natural gas industries has had a negative effect on the European suppliers of the global players in these industries. In contrast, the weakness of the euro has strengthened the division’s competitive position in the USA compared with its North American competitors; this has had positive effects, particularly for deliveries to the aviation industry.

New automobile plants have been opened in Mexico, attracting suppliers who have set up operations there, resulting in increasing demand for locally manufactured tools. In Brazil, however, the economic climate worsened in the course of the year, and industry, especially automobile production, has faced declining sales figures. The low price of oil, combined with very high extraction costs at wells off the coast of Brazil, and rampant corruption scandals adversely affected the investment activity of Brazilian oil company Petrobras, which is important for the division. A positive aspect with regard to Brazil is that the rate of exchange for the Brazilian real has fallen significantly, thus strengthening the international competitiveness of local manufacturing operations, especially with regard to exports to North America. In Asia, particularly in China and India, the division profited from the favorable economic trend in the customer industries important for its products, and business volume was expanded compared to the previous year.

In the current business year, the High Performance Metals business segment (production) had to deal with lower demand due to the economic situation that has resulted in customers’ high inventory levels. Nevertheless, it was able to once again increase deliveries of premium products, e.g., remelted and powder-metallurgical steel. The situation for open die forging products for the heavy mechanical engineering and energy engineering industries remained challenging. Volumes in the precision strip steel segment also declined, while the sales volume of special steel for the aviation industry rose. Overall, capacity utilization of the Special Steel Division’s production companies in the first nine months of 2015/16 fell slightly below the previous year’s level.

In the first nine months of the current business year, the Value-Added Services business segment greatly benefited from the ongoing expansion of the global sales network that includes service activities, such as heat treatment, pre-processing, and coating. Despite the challenging market conditions, the consistent strategy pursued by the Special Steel Division of continuing to expand its leading position as a premium service provider for toolmaking worldwide enabled the division to achieve greater delivery volumes at prices that were relatively consistent.

As far as the focal points of the investment activity of the Special Steel Division in the first three quarters of 2015/16 are concerned, an additional electro slag remelting (ESR) system was put into operation as scheduled in the first quarter of 2015/16 at the Hagfors location in Sweden. It is being used to manufacture premium tool steel. In the Value-Added Services business segment, the expansion of the location in Katowice, Poland, made the concentration of warehousing, heat treatment, coating, and processing at a Polish location possible. A new branch that will focus on support services for the oil and natural gas industries was opened in Singapore. In the third quarter of 2015/16, the division also established a center for additive manufacturing of components (3-D printing) in Düsseldorf; this is an important step for the advancement of future-oriented technologies. New applications will be developed here jointly with customers that build on existing competence in the production of powdered metal. The investment volume of the Special Steel Division in the first nine months of 2015/16 was at EUR 105.6 million, 6.6% higher than the figure in the same period of the previous year (EUR 99.1 million).