While highly positive customer order levels in all important sales regions and/or industrial segments still characterized the market environment of the High Performance Metals Division at the start of the business year 2018/19, weakening trends began to emerge after the summer of 2018. Considered in regional terms, particularly Europe and China increasingly saw a dampening of economic sentiment; considered in sectoral terms, primarily the automotive and the consumer goods industry were affected by the declining momentum. Given the division’s global alignment, the fact that protectionist policies intensified worldwide throughout the year—especially the trade war of the United States against China—tended to have a negative effect on its performance. By contrast, the market environment of the aerospace as well as the oil and natural gas industry remained stable at a positive level throughout the business year 2018/19.
In the aerospace industry—for which the High Performance Metals Division produces special steel parts based on titanium alloys, high-alloyed steels, and nickel-based alloys—the acquisition by Airbus of Bombardier’s C-Series and the acquisition by Boeing of Embraer’s civilian aircraft segment enabled these two major aircraft manufacturers to further expand their dominating market positions. Although Boeing has announced in the wake of the turbulence caused by its 737 MAX aircraft family that it will lower its monthly construction rates and Airbus, for its part, has announced that it will cease production of the world’s largest passenger aircraft (the A380) starting in the calendar year 2021, the division does not expect any weakening of the sector in the foreseeable future. The product segment that is focused on special materials for the oil and natural gas industry also succeeded in boosting sales year over year. In addition, this customer segment developed and produced first sophisticated components using the additive 3D manufacturing process in the business year 2018/19. The oil and natural gas sector offers the division a market with a highly promising future in the realm of 3D printing, because batch sizes are relatively small, materials are expensive, and product designs are complex.
In the tool steel product segment of the High Performance Metals Division, where the automotive and the consumer goods industry are its main customers, the distortions in Europe’s automotive sector in the second half of the calendar year 2018 caused order levels to shrink. The meltdown of automotive sales in Europe resulting from the new emissions testing procedure (the Worldwide Harmonized Light Vehicle Test Procedure – WLTP) has greatly diminished the automotive industry’s need for investments. The new test cycle also had potentially adverse effects on the broad range of auto models and options—an important driver of demand for tool steel. Even the European mechanical engineering industry, with its traditionally high export rate, had to contend with a potential dampening of economic sentiment due to the globally growing protectionism. In addition, the isolationist stance of the United States increasingly caused international providers to shift to the European tool steel market. As a result, it was no longer possible to offset rising pre-materials, energy, and electrode prices in full by raising sale prices in the standard product segment.
In China, the dampening of economic sentiment in the automotive industry was due primarily to the country’s growing trade war with the United States, which had an impact not least on consumers’ reluctance to make new vehicle purchases. But tool exports from China to the US also declined in the wake of the latter’s growing protectionism—with correspondingly negative effects on demand for tool steel, the division’s main product segment in China. While the consumer goods industry remains a key economic sector in Asia’s largest economy, individual labor-intensive sectors such as the electrical or toy industry have already shifted their operations to countries in Southeast Asia, where unit labor costs are lower.
Brazil’s economic development in the calendar year 2018 saw a slight recovery. A corruption scandal had brought activities in the country’s oil exploration industry practically to a standstill for years, but the sector experienced a slight upturn in 2018. Both the licensing of private oil producers and the enactment of programs aimed at kickstarting investments launched a new oil exploration investment cycle in the country. In North America, the High Performance Metals Division benefited from stable developments in this sector, not least because most of its applications for exemption from the US’s punitive tariffs were granted.
Regarding capacity utilization, particularly the division’s production facility in Wetzlar, Germany, was greatly affected by the weakening of economic sentiment in Europe due to customers’ caution in purchasing plastic mold steel. Moreover, the weakness in energy engineering, which has continued unabated for years, as well as competitors’ resulting shift to large-mold toolmaking have intensified competitive pressures, in turn triggering comprehensive cost control measures. The pressure on volumes in China due to ever-shortening order cycles had a negative impact on capacity utilization at the High Performance Metals Division’s facility in Hagfors, Sweden, which has traditionally been strongly aligned with Southeast Asia and China in sales terms. Capacity utilization at the production facilities in Kapfenberg, Austria, by contrast, remained solid throughout thanks to their focus on the oil and natural gas industry as well as aerospace customer segments. In the business year 2018/19, the division’s production plant in Sumaré, Brazil, substantially improved its performance year over year.
Although the given market shows weaknesses in some regions, the Value Added Services business segment is focused on expanding its one-stop shop (OSS) strategy with the aim of continuing to push its technical consulting expertise—the key to success. Due to slowing momentum in China’s tool steel market, the division’s local service centers are delivering declining yet still satisfactory performance.