Market environment*

Europe began 2016 with a continuation of last year’s moderate growth, which has remained largely stable and was most recently supported by some growth in industrial production and expanding exports, despite increasing political instability in some regions (Brexit, attempted coup in Turkey, ISIS terrorism). The primary driver of the upward trend, however, is still private consumption.

Against this backdrop, the automotive industry—the most important market segment for voestalpine—continued its strong development in the past quarter. The outlook remains positive. The trend in the aerospace industry was similar; the consumer goods and railway infrastructure sectors were also characterized by a solid level of demand. In contrast, the weakness in demand in the entire energy sector remained dramatic. Momentum in the construction industry was only modest, but the mechanical engineering industry gained steam, although it is still volatile and differs widely from region to region.

In the past quarter of the business year, growth momentum has declined in the USA due to the weakness of the oil and natural gas sector as well as lower exports because of the strength of the US dollar. Like in Europe, private consumption stayed solid; it is the main pillar of the economic trend that remains fundamentally positive.

In the automotive and aerospace industries, which are the most important market segments for the voestalpine Group in North America, demand remained stable at a high level, while momentum in the railway infrastructure sector has begun to flag, primarily due to collateral effects (falling transport volumes) of the sluggish oil and natural gas industries.

Overall, China remains on a growth trajectory even though momentum has diminished compared to prior years. However, the key products of the voestalpine Group—tool steel, automotive components, and railway equipment—are not significantly affected by the cooling of the Chinese economy.

In the past quarter, the economic situation in Brazil was exacerbated, not least due to yet another escalation of the domestic political crisis situation. This downtrend was characterized by a further decrease in domestic demand and an unexpected upward reevaluation of the Brazilian real, which caused exports to decline.

The voestalpine companies in Brazil reacted by making the already very rigorous cost reduction and efficiency improvement measures even more stringent.