Declining momentum in the market environment of the Metal Forming Division already began to make itself felt in the second half of the previous business year and continued in the first two quarters of the business year 2019/20. Demand in the division’s two large business segments—Automotive Components and Tubes & Sections—was greatly diminished particularly during the last two months of calendar year 2019. The sentiment did not improve until the business year’s fourth quarter thanks to customers replenishing inventories. Toward the close of the business year ended, important customer segments saw curtailments on production, in some cases even complete albeit temporary shutdowns, to mitigate the spread of the COVID-19 pandemic. This led to a sudden interruption of the upward trend. In reaction to weak demand, many European companies registered their employees as being engaged in short time work and further intensified cost-cutting programs. But individual business segments did in fact display stark differences with respect to the reporting period’s volatile development.
The Automotive Components business segment was confronted with declining production output among its automotive customers in Europe. At about 15 million sold cars, the sales figures in the European Union for calendar year 2019 were stable at a good level. However, in recent years German automotive manufacturers have increasingly moved production to countries outside of Europe. This shows that the business segment’s strategy of establishing production facilities in China, South Africa, the United States, and Mexico was purposeful in that it enabled the segment to supply customers locally with high-quality components (including components from voestalpine’s own facilities in Europe). One of these plants, however—specifically, the one in Cartersville, Georgia, USA—incurred sharply higher start-up costs with the associated adverse effects on earnings. Thanks to the measures taken, the company did succeed over the course of the reporting period to boost its efficiency. Toward the close of the business year 2019/20, automotive component production at the Cartersville plant was suspended for a few weeks because the original equipment manufacturers (OEMs) among its customers had shut down their plants owing to the COVID-19 pandemic. In Europe, too, manufacturers in the automotive industry shut down production at about the same time in the face of the pandemic, precisely at the time customers’ order call-ups had begun to recover after the X-Mas break. Automotive Components reacted to the sharply lower utilization of capacity at its plants by adjusting capacities and registering employees for short time work. The first country to be affected by COVID-19 and thus also its local automotive industry was China. The country’s central government expanded plant closures, which traditionally start with the onset of Chinese New Year, to several weeks. Capacity at plants is being expanded incrementally as demand for cars is recovering since the lockdown was lifted.
The automotive industry is an important customer segment of the Tubes & Sections business segment as well. Aside from sections for the commercial vehicle industry, this segment also produces safety components for the global automotive supply industry. Orders from the commercial vehicle industry were weak throughout the business year ended. Demand for safety components had already started to shrink back in the fall of 2018 due to the significant decline in sales among volume manufacturers, especially of Chinese automotive brands, and remained at a low level throughout the business year 2019/20.
The late-cycle construction industry developed along a good trajectory in Europe, while orders from the construction machinery industry were already declining. In the United States, Tubes & Sections met with much better business sentiment thanks to highly satisfactory order levels from the storage technology, agricultural machinery, and aerospace industry. In Brazil, consistent marketing in an economically less than stable environment supported this business segment’s recovery in the business year ended. Similarly to Automotive Components, the global spread of COVID-19 interrupted this upward trend at the start of calendar year 2020. So far, however, Tubes & Sections has not been affected as much as Automotive Components by the meltdown in demand.
Despite the decline in demand, the Precision Strip business segment developed along a largely satisfactory trajectory in the business year 2019/20 even though its margins and thus its profitability ended up being weaker than during the boom in recent years. Order levels in China leveled off at a slightly lower level during the business year ended. In the U.S., the dampened business climate already affected the band saw steel segment. Compared with other regions, in Europe demand for strip steel products fell the most. Here, the segment’s products bimetallic strip, band saw steel, and razor blade steel were the ones that suffered the most.
Just as in previous years, in the business year ended the Warehouse & Rack Solutions business segment benefited yet again from robust project activity that continues unabated with respect to high-bay warehouses and storage systems. The growing importance of e-commerce is driving the need for complex storage logistics. Hence this segment was able to implement numerous e-commerce projects in the business year 2019/20. Aside from the segment’s home markets in Europe, North America also offers growing perspectives for automated storage technology. By contrast to the three other business segments of the Metal Forming Division, Warehouse & Rack Solutions did not experience any reduction in capacity utilization owing to COVID-19. On the contrary, the pandemic is expected to boost e-commerce—and thus the need for efficient storage systems—yet further.