Viewed globally, the economic development in the first nine months of the business year 2015/16 was characterized by increasingly dwindling growth momentum and fears of a renewed crisis, despite the fact that Europe was able to largely maintain its moderate growth throughout the year. In contrast, the solid economic growth in the NAFTA region throughout much of the year showed disappointing early indicators in the manufacturing industries toward the end of the year. In China, on the other hand, a very significant weakening of economic sentiment was felt much earlier. After a number of weak economic indicators across all industries and the resulting devaluation of the Chinese currency, ever since the fall of 2015, the country has been gripped by uncertainty about future economic prospects. Of the other major emerging economies, only India was able to increase economic momentum during the year, while Brazil and Russia remained in a deep recession.
In Europe, the somewhat positive economic trend, which began in previous reporting periods, continued in the last calendar quarter of 2015. The early economic indicators even improved toward the end of the year, reflecting a brightening of the mood in the European Union. At the end of the year, private consumption remained the main driver of the positive development, while investment activity stayed weak. Consequently, the performance of the manufacturing industries, including the construction sector, remained subdued, while the tertiary sector (service sector) maintained its robust trend.
In the third quarter of the current business year, the voestalpine Group continued to profit from both the very dynamic momentum in the automobile sector and solid demand in the consumer goods sector. The railway infrastructure and aviation sectors continued to demonstrate a strong performance.
The performance of the construction industry, which is comparatively less important for voestalpine, continued to be modest at best.
Largely unaffected by the positive development in individual industries, the European steel industry struggled with the continuing dramatic price decline on the spot market in the third quarter of the business year 2015/16, which was triggered by an unprecedented boom in imports of commodity steel, particularly from China and Russia. The Steel Division of voestalpine was only indirectly affected by these developments, as the volume it sells on the spot markets is not particularly noteworthy because the division is focused on highly specialized, top quality, sophisticated product segments. Nevertheless, the massive volume of products offered at dumping prices led to extremely negative sentiment on the steel market overall, which resulted in difficult negotiations even in the high-tech sector.
While the economy in North America performed positively throughout the business year 2015/16 thus far, toward the end of the 2015 calendar year, the economy began to show weaknesses for the first time in quite a long time, which were triggered by disappointing early indicators in some branches of the manufacturing industries. In contrast, the service sector continued to perform at a solid level so that the overall economic situation in North America at the beginning of 2016 remains positive.
For voestalpine, business in North America in the first nine months of the current business year differed from industry to industry. While the rapid decline of the oil price and the associated greatly reduced exploration activity left its mark in the performance of the Special Steel and Metal Engineering Divisions, the Group’s other activities in the NAFTA region performed at a very satisfactory level.
Demand from the aviation industry is particularly positive, but the automobile and consumer goods sectors as well as the railway infrastructure sector also maintained a stable performance.
Asia / China
Ever since the first half of 2015, signs of a slowdown of economic growth in China have been increasing on practically a monthly basis. At the heart of this development is the fact that the transition from an economy managed by the State to an economy that is consumer-oriented and consumer-driven in every respect—time, money, organization, and society itself—is more challenging than expected. The reaction of the Chinese Central Bank and the devaluation of the renminbi appears to have emphasized the pessimistic mood even more forcefully.
While demand in China for voestalpine products, for example, in the automotive component and tool steel sectors, remained stable, the cooling of the domestic economy in China produced massive waves on the international commodity markets. For example, the substantial decline in demand for commodity steel in China had a dramatic effect on the global commodity markets, resulting in yet another reinforcement of the already existing negative price trend. Furthermore, Chinese steel manufacturers looked for alternative sales opportunities on the global export markets, which led to an enormous price decline on the steel spot markets worldwide.
Although many economies reacted to this deluge of Chinese exports, which are subsidized by the State, with broad-based import restrictions, the European Union has thus far not been able to bring itself to implement comprehensive measures, with the exception of individual product groups. The result has been an explosion of imports during the course of the year and a dramatic plunge in prices on the European market.
In the past quarter, the recession in Brazil has continued unchecked. The economic parameters are still dictated by negative economic growth that, in turn, swells the country’s sovereign debt. The voestalpine locations in Brazil have reacted to these framework conditions with restructuring measures, rigorous cost-cutting programs, and increasing development of new international markets. As a result, the earnings of these Brazilian subsidiaries have remained satisfactory and stable.
* This report is a translation of the original report in German, which is solely valid.