Market environment*

The long prevailing, moderate but stable growth trend in Europe, which was not slowed by last year’s critical political developments (Brexit, unrest in Turkey, war in the Middle East, terror in Europe), continues to successfully resist negative political influences. Thus, in the third quarter of the current business year 2016/17, Europe’s economic development also continued on its modest but decidedly resilient path of growth. It continues to be predominantly driven by private consumption, although toward the close of the calendar year increasingly positive signals from industry also became discernible. Investment activity remains predominantly driven by upgrading measures and efficiency increases with still little investment in growth. However, the devaluation of the European joint currency and positive global growth signals justify cautious optimism as 2017 progresses. Public expenditure in Europe grew throughout the business year 2016/17, but has only had a limited impact on economic growth to date.

In this environment, voestalpine benefited from an unabated, excellent level of demand from the automotive industry, and a stable and robust economic situation in the consumer goods sector. While the railway infrastructure sector still demonstrated excellent demand over long stretches of the current business year, it weakened during the third quarter, especially in Europe. This is partly the result of seasonally-related reductions in project activity during the winter month as well as project deferrals by railway companies. Despite the OPEC agreement to reduce oil production volumes and the slight rise in oil prices this generated, Europe’s energy sector initially remained weak, with dynamism in the construction industry also staying subdued.

The most notable event on the North American continent during the third quarter of 2016/17 was the election of Donald Trump as president of the United States. Following Trump’s unconventional and extremely direct statements and announcements on a range of issues during the election campaign, after his election the focus of public interest has increasingly shifted to his integration and economic policies which both share a pronounced protectionist stance.

Whereas the economic situation in the USA in 2016 was characterized by a certain volatility, although with overall satisfactory growth rates and low levels of unemployment which, in contrast to Europe, have already led to a first rise in interest rates, President Trump’s announcements have most recently led to a significant rise in expectations with regard to economic development over the medium term. The extent to which the signaled protectionist measures will also result in a weakening in the economy still remains to be seen.

In any event, a return to more intensive exploration activities in the USA had already resulted in improved demand in the oil and gas industry during the most recent business quarter, which in turn directly led to an increase in incoming orders in the Seamless Tubes business segment (Metal Engineering Division). As in Europe, private consumption continued to be a key economic driver in the NAFTA region, with automotive demand consequently also remaining high. Over the course of the business year, demand in the railway infrastructure segment slowed somewhat, not least as a collateral effect of weakness in the oil and gas sector. However, it has stabilized in the meantime. After the boom years of the past, growth in the aerospace industry slowed a little over the business year, but performance in the sector continues to remain stable at a positive level.

China was also able to retain its largely stable growth momentum during the past quarter. This was driven by continued growth in private consumption and particularly by the recently launched investment program for the infrastructure, construction and real estate sectors. In China, the voestalpine Group is actively manufacturing products for the consumer goods, automotive components and railway equipment sectors, all industries which have enjoyed an excellent level of performance for a long time now.

After the change of political leadership in Brazil, general sentiment in the country has improved somewhat, although the country has not yet succeeded in moving out of recession. The ongoing weakness in the Brazilian economy, leading to insufficient demand across almost all economic sectors, has also impacted voestalpine sites in Brazil. These have responded with rigorous cost-cutting programs and efficiency-raising measures. Easing in the global raw materials markets over the past months has recently led to an initial revival of demand in the railway infrastructure sector (as one of the world’s largest producers of iron ore, Brazil supports a large rail infrastructure) which is possibly a first sign of a turnaround.