The Metal Engineering Division was organizationally realigned in the business year 2018/19 so that it can continue to push intra-Group collaboration, for one, and present itself to customers as a provider of complete, demanding systems solutions, for another. As a result, those areas that provide innovative rails, turnout, and signaling technology products and systems solutions for international rail infrastructure projects were brought together in the new “Railway Systems” business segment. Following the same basic approach, the division’s expertise in the formerly separate segments—Wire Technology, Tubulars, and Welding Consumables—was combined in the new “Industrial Systems” business segment.
In the Railway Systems business segment, the rail technology product segment recently lost some of its momentum after experiencing a slight uptick at the start of the business year, because it was unable in the short term to fully offset higher pre-material costs by way of pricing. While demand was solid overall in Europe’s core markets—particularly due to catch-up effects related to maintenance investments, less so due to new railway tracks—the overseas markets that are key to the rail technology segment were faced with difficult market conditions that continued unabated, especially with respect to competition. Nonetheless, analyzed over the entire business year capacity utilization at the division’s plants was pleasing. The introduction (already under way) of a new generation of heat-treated high-performance tracks enables the Railway Systems business segment to once again aim for greater differentiation vis-à-vis the competition so that it can use the resulting innovation advantage to circumvent the price pressures that have grown in recent years as much as possible.
The turnout systems product segment, by contrast, was able to carry over its excellent performance in recent years into the business year 2018/19 as well. Thanks to its strong market position, this segment is not only exposed to less competitive pressure, it can also leverage its comprehensive global presence to better offset market weaknesses in individual regions. Because materials account for a relatively small share of the division’s total costs, increases in the cost of raw materials associated with turnout production are a much smaller challenge than is the case in rail production. In market terms, the segment enjoyed largely stable demand in Europe’s core markets. Following project postponements at the start of the business year, market conditions in China were attractive, especially in the high-speed sector. In order to benefit from the extensive mass transit infrastructure projects, currently the division is working on establishing a second turnout production facility in China in collaboration with a renowned joint-venture partner. In North America, the market environment in the heavy haul and transit traffic segments was good. Activities in Australia’s and Brazil’s mining regions also continued to be successful, whereas project activity in South Africa was as volatile as before.
The relatively new signaling product segment, which is positioning itself in the market as a provider of complete solutions and delivers digital sensor technology to railway operators, is in the process of rolling out its business model selectively from Europe to the rest of the world.
Declining momentum in the European automotive market characterized the economic environment of the Industrial Systems business segment over the course of the business year 2018/19; this had a dramatic effect on the wire technology product segment, which is strongly aligned with the automotive sector. While the sentiment in the European automotive industry was still positive in the first quarter of the business year 2018/19, orders began to decline as the year wore on due to the introduction of the new emissions rules under the WLTP. Although the auto manufacturers’ production figures subsequently stabilized at the start of the calendar year—albeit at a slightly lower level year over year—the recovery of the wire technology segment remained sluggish, because large inventories within the delivery chain had to be reduced first.
The challenging conditions in the tubulars product segment, by contrast, did not stem from any weakening in the economic environment, but instead from the imposition of protectionist Section 232 tariffs on imports of steel products into the United States. In market terms, the US rig count (active/inactive drilling operations), which serves as an indicator of the development of demand in the important US oil and natural gas market, remained stable during the business year 2018/19. Before the Section 232 tariffs took effect, however, the oil and gas field equipment suppliers sharply built up their inventories in the expectation that prices would rise significantly on account of the import duty of 25% that would be collected as of June 1, 2018; subsequently, these inventories were once again cut back to average levels by the end of the calendar year 2018. The measures taken in years past with respect to cost-cutting and efficiency enhancement programs in the welding consumables product segment delivered significantly positive effects in the business year 2018/19. In market terms, however, the performance of this product segment, which is strongly aligned with the energy sector, was just average. As a result, demand for welding consumables in China remained at a solid level, while the dampened economic sentiment in Europe continued unabated. As any upturn is expected to be restrained in the medium term, too, this product segment is focused on expanding niche segments, for one, and on pushing its collaboration with other voestalpine companies with the aim of developing new business opportunities.