Steel Division

Market environment and business development

The Steel Division succeeded in carrying its momentum in the last quarter of 2016/17 over into the new business year. In this connection, the general demand level, which remains advantageous, has had a positive, stabilizing effect on prices. With respect to raw materials, early April saw a sudden explosion in the cost of coking coal, which doubled prices within just a few days. But they returned to the level prevailing at the start of the year a few weeks later. After reaching a three-year high in the first calendar quarter of 2017, iron ore experienced a downward trend at the start of April that continued unabated during the entire quarter. By contrast, the pellet premium—the premium for highly compressed iron ore (“pellets”) over fine ores—remained high, as before.

In terms of market developments, flat steel imports to Europe in the first half of the calendar year 2017 continued to grow compared with the same period of the previous year.

In terms of performance, continued high demand from the automotive industry drove the development of the main customer segments in the first quarter of 2017/18, too. Orders from both the mechanical engineering and consumer goods industries were solid, and the private construction industry is also recovering at an accelerating pace. Demand as it affects the direct reduction plant in Corpus Christi, Texas (which switched to normal operations as of April 1, 2017), is good. Both the quantities purchased and the product quality are developing according to plan. Currently, the main focus of activities is on the continued optimization of regular operations. Capacity utilization in the heavy plate business segment, which is focused largely on the energy segment, is satisfactory, because major orders will be processed in the course of the business year 2017/18.

Financial key performance indicators

A substantial increase in prices relative to prior periods along with a slight decrease in delivery volumes caused the revenue of the Steel Division to rise by one third from EUR 909.0 million in the first quarter of 2016/17 to EUR 1,213.3 million in the first quarter of 2017/18. The ongoing downward trend in the first quarter of 2017/18 in prices for iron ore, the most important raw material for the production of crude steel in blast furnaces, already led to a decline in spot market steel prices during the quarter. This did not affect the Steel Division, however, because it is focused on the longer-term contract business model. As a result, the development of earnings in the first quarter of 2017/18 is the opposite of the corresponding prior-year quarter during which the Steel Division was not yet able to profit from the short-term increase in global steel prices because of its orientation toward the longer-term contract business model, while the increase in the cost of raw materials put pressure on earnings at the same time. Against this backdrop, EBITDA rose by 161.2% from EUR 87.2 million in the previous year to EUR 227.8 million in the first quarter of 2017/18. EBIT skyrocketed in the same period from EUR 21.1 million to EUR 150.2 million. As a result, the EBITDA margin improved from 9.6% to 18.8%, and the EBIT margin from 2.3% to 12.4%. The earnings performance of the Steel Division in the first quarter of 2017/18 thus was the best since the onset of the 2008 financial and economic crisis.

As of June 30, 2017, the Steel Division had 10,810 employees (FTE), which means that the number of employees declined by 0.5% compared with the same reporting period the previous year (10,869 employees).