The two business segments of the Metal Engineering Division—Railway Systems and Industrial Systems—faced very different market environments in the business year 2019/20. Order levels in Railways Systems, which has encompassed the division’s rail, turnout, and signal technology products since the business year 2018/19, were good throughout. By contrast, there was a clear dampening of conditions in the market environment of two of Industrial Systems’ three product segments—mainly wire and seamless tube products. The welding consumables product segment (welding consumables and welding equipment) for its part succeeded in developing along a relatively stable trajectory during the entire business year despite the weakening macroeconomic environment.
Railway Systems and Industrial Systems—downstream processing segments both—lay claim to high product quality. The fact that they guarantee it to their customers is closely bound up with their own steel production in Donawitz, Austria, using blast furnace technology. By contrast, their competitors in individual segments such as wire technology and tubulars (seamless tubes) rely on electric furnace technology for producing pre-materials. Given the significant increase in prices for iron ore used in blast furnace operations compared with prices for scrap used in electric furnace operations, these manufacturers were able to benefit from the significant advantages in raw material costs thus accruing to them from time to time. In part, voestalpine managed to offset this disadvantage by using a cost-optimized raw materials mix in pig iron production at its Donawitz steel plant.
Solid order levels in Europe had a positive effect on the Railway Systems business segment during the business year 2019/20. Investments in the European rail network create the most important market by far for the rails product segment that relies on Donawitz for production. Outside of Europe, the segment’s focus traditionally has been on heavy-haul transports in mining regions. The impetus coming from both Australia and Brazil in this connection was largely positive. Satisfactory demand overall ensured good capacity utilization with respect to rail production in Donawitz. By contrast, the high cost of raw materials put a damper on earnings because the costs could only be passed on to customers after a certain time.
With more than 40 production and distribution centers worldwide, the turnout systems product segment is shaped by its pronounced global orientation. This global market leader develops and produces turnout systems based on customers’ specifications for heavy haul transportation as well as high speed and mass transit systems. In terms of demand, the turnout systems segment benefited during the business year 2019/20 from China’s comprehensive economic stimulus programs. While activities in Europe, Australia, and Brazil were satisfactory overall, there was little momentum in South Africa. The U.S. market, finally, was confronted with a downward trend throughout the business year ended. Because it is largely owned by private companies and is focused mainly on the freight business, the railway market in the United States is strongly dependent on macroeconomic developments. The signaling technology product segment successfully expanded its operations yet again in the business year ended. Its main focus is on digitalized turnout diagnostic systems and rolling stock alarm systems that enable customers to avoid unnecessary preventive maintenance.
So far, the COVID-19 pandemic has had relatively moderate negative effects on the Railway Systems business segment. Turnout systems production in China was restricted for a few weeks, but orders on hand are high. Europe’s railway infrastructure market remained robust as well. Given that railway systems in both the United States and Australia are deemed systemically relevant, production continued in both countries albeit subject to strict security precautions.
The market environment of the Industrial Systems business segment continued to deteriorate throughout the business year 2019/20. As a partner of the European automotive supplier industry, the wire technology product segment sells high quality wire products to its customers. Wire, a pre-material, is used among other things for engine fasteners, ball bearings, and shock absorber springs. The challenging conditions that this segment faced in the reporting period resulted from a number of factors. The downturn in Europe’s car production is causing markets to shrink at the same time as high raw material costs are putting increased pressure on the margins. Given declining capacity utilization, capacities at the wire production facility in Donawitz were cut from four shifts to three at the beginning of the business year 2019/20.
The economic environment of the tubulars product segment for its part was adversely affected by both weakening market momentum and strong competitive pressures. Tubulars manufactures sour gas-resistant oil country tubular goods (OCTG) for the exploration and extraction of natural gas and crude oil as well as gastight threaded connections. The business year ended saw a decline in demand for equipment required for extracting shale oil and natural gas in the United States. The imposition of Section 232 protectionist tariffs on steel imports had already diminished the attractiveness of the U.S. market for tubulars. The tubulars segment reacted by taking the following targeted measures: For one, its stated objective is to continue segmenting its sales regions and, for another, it will consistently push innovation to achieve further product differentiation. At the level of operations, manufacturing in Kindberg, Austria, was reduced from four-shift operations to three at the end of the summer 2019. Because oil prices tanked toward the end of the business year 2019/20 and current demand is low, the oil sector is not expected to recover until the start of the next business year.
The welding consumables product segment took comprehensive steps in previous years to lower costs and boost process efficiency. The acquisition of Selco, a North Italian welding machine manufacturer, in the fourth quarter of the business year 2019/20 enabled the segment to develop into a full-service provider in the welding technology market (see the chapter, Acquisitions). In addition to a comprehensive range of welding consumables tailored specifically to the energy and transportation sectors, the segment’s product portfolio now also includes welding machinery. A new plant was built in the United States to counteract the negative effects of the country’s protectionist policies. However, the U.S. market environment developed poorly due to the decline in the country’s industrial activities, whereas activities in Europe were somewhat satisfactory despite the dampening of sentiment. The spread of the COVID-19 pandemic interrupted Asia’s relatively positive momentum during the first three quarters of the business year ended.
On the whole, the adverse effects of the crisis in the business year’s fourth quarter on the Industrial Systems business segment were manageable. The management of the Metal Engineering Division reacted to declining orders by launching further initiatives aimed at lowering costs. For example, employees at the division’s most important locations in Europe were registered for short time work so that it can adjust capacities as best as possible to the development of demand.
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