The European steel industry experienced contradictory developments in the calendar year 2018. While the year’s first half was characterized by excellent demand across practically all key customer segments, the year’s second half saw dramatic signs of a weakening in a number of industrial sectors. In turn, two distinct effects characterized the steel industry’s positive trajectory during the first half of the year. For one, the steel production output of the European manufacturers rose slightly yet again compared with the already very good level in the previous year despite continued high imports. For another, steel prices stabilized in the spot market at a high level despite the decline in spot buying prices for iron ore. Increasingly, however, the sentiment darkened over the summer. This development was driven mainly by the sharp decline in the momentum of the automotive sector, which plays an important role particularly with respect to high-quality steel products. In the early fall, the auto manufacturers lowered their order call-ups, on short notice and in part substantially, owing to the new Worldwide Harmonized Light Vehicle Test Procedure (WLTP). The stricter requirements that went into effect as of September 2018 had a massive effect on the German automakers, in particular, which traditionally offer a broad range of both models and options. Aside from the automotive industry, orders from the white goods and consumer goods industry also declined—in part substantially—over the course of the business year. However, the mechanical engineering and construction industries, both of which are equally relevant to the Steel Division, developed along a satisfactory trajectory throughout the business year 2018/19, even though individual segments of the mechanical engineering industry began to display the first signs of weakness toward the end of the year. In addition to the fact that the economic environment was becoming more challenging overall as the year wore on, the steel industry in Europe was also affected by critical trade policy decisions. The international flow of goods changed the moment the Section 232 import tariffs, which were imposed to protect the US steel industry, went into effect. Absent sufficient capacity in their respective domestic markets to soak up the excess, Turkish and Russian producers, for example, switched their focus increasingly on the European Single Market. As follows from the resulting high level of imports up to the end of the business year, neither the temporary protective mechanisms (“Safeguard Measures”) that the European Commission enacted in mid-July 2018 nor the final ones had any effect.
The fourth quarter of the business year 2018/19 saw a significant price increase in iron ore with the resulting pressure on margins. This was due to the shortage of supply following a dam break in a Brazilian mine, for one, and a tropical cyclone in Western Australia, for another. Consequently, in the first few months of the calendar year 2019 orders remained slightly below the very good level during the same period the previous year.
The delivery volumes in the Steel Division during the business year 2018/19 fell somewhat short year over year due to the complete overhaul (relining) of the Group’s largest blast furnace, which is located at its Linz site in Austria. The repairs, which took more than three months, reduced the production of crude steel by around one million tons. Good capacity utilization was maintained at the downstream rolling facilities thanks to pre-materials inventories that had been built up in the preceding periods as well as purchases of pre-materials despite the considerably greater complexity of the operating processes.
Owing to its strong position in the demanding deep-sea pipeline segment, the Heavy Plate business segment delivered excellent performance in the business year 2018/19 even though the markets remained hesitant overall. In the business year’s third quarter, however, provisions had to be set up in view of potentially adverse financial effects from a pending investigation by the German Federal Cartel Office (Bundeskartellamt).
The direct reduction plant in Corpus Christi, Texas, USA, succeeded in leveraging largely good market conditions in the business year 2018/19 only in part, because its production volume had fallen below normal capacity on account of non-recurring effects. These arose from planned production stoppages (a scheduled three-week maintenance shutdown in June) as well as unplanned plant shutdowns such as the two-week production stoppage resulting from heavy rains and floods in September 2018 as well as a gas pipe break that occurred a short while later. Subsequently, the plant’s production capacity stabilized over the course of the business year’s second half.