Market environment
and business development*

In a year-to-year comparison, crude steel production in Europe went down slightly in the first three quarters of 2015/16, with the decline taking place primarily in the third quarter of the business year. In contrast, demand for steel in Europe during the same period actually trended up slightly, due mostly to higher demand on the European markets, driven by moderate economic growth in the EU. The reason why the production figures of the European steel industry could not keep with with growing demand for steel was that pressure from imports escalated during the current business year to an unprecedented degree. Especially the Chinese steel manufacturers reacted to dwindling domestic demand by expanding exports and flooding the spot markets worldwide with commodity products. Against this backdrop, the European Commission initiated investigations into dumping allegations against China, Russia, and other countries with regard to cold-rolled steel strip and other product groups as well, which, however, are less important for the European steel industry. The official decision regarding introduction of temporary customs duties for cold-rolled steel strip is expected shortly. Notwithstanding this measure, the European Steel Association EUROFER is trying to motivate the European institutions to take immediate and comprehensive trade measures with regard to other—and more significant—product groups.

The massive pressure on steel prices, however, is not just coming from dramatically increased imports but is also due to the continuously decreasing raw materials prices. The trend in the price of iron ore, which began to move downward early in the 2014 calendar year, briefly shifted laterally in the first half of the current business year, but in the third quarter of 2015/16, it recommenced its downward trajectory. Fine ore, the most important raw material for blast furnace-based crude steel production, fell in December 2015 to under USD 40 per ton (CFR China); just two years ago, its price had been USD 130 per ton. While the timeline has been different for scrap, the price has been on the same trajectory. While the drop in the price of scrap was still moderate in the 2014 calendar year, in the summer and fall of 2015, the price plummeted to around EUR 165 per ton. Due to this and other reasons, the spot price for hot-rolled strip in southern Europe fell toward the end of the third quarter of the business year 2015/16 to below EUR 300 for the first time. Although the Steel Division focuses on high-quality steel and long-term contracts with its customers and thus does not depend on spot business, it cannot escape such negative sentiment. Nevertheless, the effects of this trend on its earnings have been comparatively modest.

As far as the development of the most important customer segments of the Steel Division is concerned, in the first nine months of the business year 2015/16 it was once again the automobile industry that constituted the backbone of a continuing solid demand trend that was driven to no small degree by the increasing number of new car registrations that reflected the growth of the European automobile industry. Both the premium manufacturers and the manufacturers of compact and mid-size cars are profiting from this trend. Furthermore, the premium segment was able to maintain its high export rate to overseas markets, while continuing to expand local production, particularly in China and the USA. The mechanical engineering industry experienced volatility in the course of the business year, although demand was relatively stable toward the end of the 2015 calendar year. Demand in the European construction industry remains subdued. The white goods and consumer goods sectors, on the other hand, saw demand that remained at a satisfactory level.

The heavy plate business segment, which is strongly focused on the energy sector (oil/natural gas), demonstrated a solid performance considering the difficult market environment. The longstanding strategy of providing a range of grades of the highest quality, especially in the pipeline segment, is a highly effective one, even in times when the oil and natural gas industries are seeing less activity. As a result, this business segment is enjoying almost full capacity utilization despite the challenging market.

In the first nine months of 2015/16, the Steel Division’s investments were focused on the completion of several new key facilities at the Linz site. A new ladle furnace was put into operation in the 2015 calendar year, and in early January 2016, another vacuum system was commissioned so that now the secondary metallurgy 4 project has been completed on schedule. The replacement of the entire quarto rolling stand in the heavy plate business segment was also finished on time despite the tight deadline. The replacement was completed in only one month, and the new facility has been fully operational since mid-November 2015. In late October 2015, blast furnace 5 was recommissioned after a scheduled major repair that took four and a half months. The implementation of the continuous casting facility CC8 is still in its early phase. Ground was broken in July 2015, and construction is in full swing. Construction of the direct reduction plant in Corpus Christi, Texas, is getting close to its final phase. The roof of the reduction tower, which is the core piece of the facility, was largely completed in January 2016. In the first three quarters of 2015/16, the Steel Division undertook investments totaling EUR 557.7 million, 59.5% more than in the same period of the previous year.