Report on the Group’s business performance and the economic situation

2017 was a very good year, and the European economy remained on a growth track in the first half of 2018 as well, even though the previous year’s strong momentum has weakened a bit as expected. Aside from the decisions of the US Administration on trade policies that display protectionist tendencies, the fallout of the Brexit had a dampening effect on economic developments overall in the first quarter of the business year 2018/19. In Great Britain, for example, vehicle registrations declined during this period for the very first time, and the construction industry on the island is also becoming weaker. In Continental Europe, by contrast, both the automotive industry and the construction industry continued to expand, as did the mechanical engineering and consumer goods industries. While the railway infrastructure sector, particularly the rail segment—whose performance in recent quarters was merely modest—showed slight signs of a recovery as regards volumes in the first quarter of the business year 2018/19, so far prices have failed to keep pace with this development because of stiff competition. The performance of the aerospace industry remains solid.

Currently, the main risks to the continued expansion of the European economy do not stem from the market environment, which continues to signal growth, but instead from the unpredictable developments in global trade that the United States has unleashed. Recent decisions in this regard have triggered both positive and negative effects in North America—albeit differently for each sector—even though the uncertainty regarding the fallout in the medium and long term of the “America First” philosophy, heretofore unknown in this intensity, seems to have been growing of late. In the first quarter of the business year 2018/19, however, the dynamic of the North American economy remained stable nonetheless underpinned by strong GDP growth and labor market data. voestalpine’s North American sites prospered in this environment, particularly in the aerospace business segment, but also in the railway infrastructure business where an upward trend finally started to make itself felt after a number of difficult quarters. Steel imports into the United States were already affected by “Section 232” import tariffs toward the end of the reporting quarter, but the added costs were passed on to customers for the most part. Where this was not possible, other markets were served instead.

The Chinese economy had to go through a certain restart following the national New Year celebrations in February 2018 before it was able to regain its accustomed momentum. It returned to its robust development before the spring was out, with solid demand in the markets that are key to voestalpine, especially the consumer goods industry, the railway infrastructure sector, and not least the automotive sector. Domestic demand for steel remained high at attractive prices which, together with structural capacity adjustments in steel production, led to declining steel exports from China and thus to a recovery of steel prices beyond the country’s borders.

Given that the US Administration’s protectionist trade policies are increasingly aimed at China and have been accompanied by correspondingly explicit rhetoric, the summer so far has seen a slight dampening of economic sentiment in the country. But the Chinese central government promptly counteracted this development by announcing stimulus measures.

The euphoria surrounding the growth that had finally returned to the Brazilian economy at the end of 2017 was not only qualified in the first quarter of the business year 2018/19 by real growth data, but also further dampened by the most recent wave of negative political headlines. The country’s situation is exacerbated by the rising US dollar; rising interest rates in the United States, Brazil’s most important export market; rising oil prices; and the general fear that the global trade wars will escalate—all told, a macroeconomic scenario that is not particularly conducive to providing a powerful impetus to the growth rates of emerging markets such as Brazil.

Brazil’s economy did grow in the first quarter of the business year 2018/19, however, which also benefitted voestalpine’s local activities in the tool steel and special materials business segments as well as in the railway infrastructure and special sections business.