The economic environment of the High Performance Metals Division deteriorated substantially in the business year 2019/20. While it improved slightly at a low level early in calendar year 2020, demand fell yet again in the business year’s final weeks owing to the COVID-19 pandemic, becoming very serious in certain sectors.
Demand for special materials used in the oil and natural gas industry or the aerospace industry was positive up to the business year’s third quarter, but demand in the tool steel product segment was already falling at the start of the business year. This segment was hammered by a number of negative effects acting in concert with each other. The fact that the automotive industry has shifted the focus of its investments to alternative drive train designs led to a reduction in the number of new models and thus in demand for tool steel. Demand also suffered due to the weakening of the consumer goods industry during the reporting period. This gloomy scenario has now reached the premium product segment also, with the result that its sales have fallen year over year.
Demand in the oil and natural gas industry was uneven. The High Performance Metals Division continued to generate growth in this area during the business year’s first three quarters despite the slowdown in exploration activities. In the fourth quarter, however, tanking oil prices caused the market to fall off the cliff. Anti-dumping activities in the United States are giving rise to further uncertainty going into the current business year.
Sales in the aerospace industry developed along a positive trajectory during the business year’s first three quarters, just like in the oil and natural gas sector. In the fourth quarter, however, component part orders for the 737 MAX aircraft were the first to plunge. Order call-ups continued to decline toward the end of the reporting period owing to the global spread of COVID-19.
The business year 2019/20 also presented an uneven picture in regional terms. In Europe, slowing demand for tool steel in the automotive sector, especially in Germany, gave rise to a challenging market environment. Sharply intensifying competition also led to strong price pressures. By contrast, orders from the European oil and natural gas industry were higher year over year, and the aerospace industry order book developed well also. But both sectors exhibited weakening trends toward the end of the reporting period in connection with the COVID-19 pandemic. Negative effects attributable to the Brexit have been negligible so far.
In the United States, the High Performance Metals Division was confronted with a number of unfavorable parameters. Anti-dumping sanctions as well as the Section 232 protectionist tariffs have increasingly changed procurement in the U.S. market. By contrast to the general market trend, however, slightly positive developments in the market for oil and natural gas continued unabated until it was shattered in early March 2020 due to the COVID-19 pandemic and the plunge in oil prices.
The economic climate in Brazil, South America’s largest market, has improved. Moreover, the low exchange rate of the Brazilian real to the US dollar has also strengthened the local exporting industry, in turn benefiting the division’s Brazilian special steel plant. Argentina’s difficulties continued unabated, however, even though the division posted growth there, too.
In China, the High Performance Metals Division had to contend with a more complex market environment during the business year ended. The business climate began to brighten a bit after the restraint of the first two quarters, but widespread production shutdowns in February 2020 related to the COVID-19 pandemic led to sharply declining demand. Nonetheless, demand levels returned to normal in March, just a month later. COVID-19 affected numerous other Asian countries a bit later on. The momentum remained positive until February 2020, but orders collapsed in March.
The business year 2019/20 brought dramatically lower capacity utilization for the High Performance Metals Division. This development stems from low demand and the reduction in inventories within the value chain. Core facilities for premium products were also affected. While developments in both the aerospace industry and the oil and natural gas industry had a positive effect overall on the utilization of manufacturing capacity, they were unable to offset the decline in demand in both the tool and the high-speed steel segment. The effect on the company’s German subsidiary, Buderus, was particularly intense. Apart from the declining momentum in tool steel, this entity was also confronted with declining demand for special forgings used in heavy haul commercial vehicles. Large-scale restructuring measures were initiated at Buderus Edelstahl against this backdrop. Add to that massive capacity adjustments that were undertaken from the middle of March 2020 in connection with the COVID-19 crisis. In particular, this included short time work, reductions in overtime, reductions in leased personnel, and cuts in investments aimed at adjusting costs in light of the changed market environment.
The worldwide weakness of the automotive industry as well as protectionist tendencies on a global scale adversely affected the Value Added Services business segment in the business year 2019/20. The strategy of differentiating an entity from its competitors both through a broad services portfolio and by expanding the range of its services continued as planned in the reporting period. Crucial support in this respect came from actions serving to optimize procedures in the sales process and targeted digitalization measures. The drive in Europe, North America, and Asia to expand the use of 3D printing technology in additive component production continued unabated. voestalpine thus is working to claim a leading market position in this cutting-edge technology also. Linking local additive manufacturing centers with the company’s own production of powder at its plants in Kapfenberg, Austria, and Hagfors, Sweden, serves to secure its technology leadership across the entire process chain. Besides its printing and development centers in Germany, Taiwan, Singapore, Canada, and the USA, voestalpine now also has two centers in China (specifically, in Dongguan and Shanghai). This segment, too, has seen massive cost-cutting measures and/or capacity cutbacks in all regions since March 2020 against the backdrop of the COVID-19 pandemic. China was the only place where an improvement in the market environment in the direction of a return to normalcy started to gain traction toward the end of the business year 2019/20.