While a dampening of sentiment had already begun to make itself felt in the European steel market since the second half of the business year 2018/19, the situation deteriorated dramatically in the business year 2019/20. This extremely challenging development culminated in the fallout from the COVID-19 pandemic toward the close of the reporting period.
Demand for steel products had noticeably cooled off as early as at the start of the business year, due mainly to the slowing of demand in the automotive, the mechanical engineering as well as the white goods and consumer goods industries. Solely the construction industry remained robust throughout.
The decline in demand contrasted starkly with the significant growth of steel imports into Europe. In the final analysis, these imports were the outcome of the United States’ Section 232 protectionist tariffs, which practically closed off the country’s market from the rest of the world, diverting the global flow of goods elsewhere. Europe’s attempt to protect its own (steel) market from this foreseeable development by enacting “Safeguard Measures” was not particularly effective, inevitably causing steel prices in Europe to decline. Unlike similar events in the past, however, this time the prices for the most important raw materials used in steelmaking did not decline also.
China, the world’s largest steel producer by far, turned out yet again to be a key factor in the development of the cost of raw materials worldwide. To stimulate its own economy, China launched an investment program aimed at the infrastructure, construction, and real estate industries, in turn pushing the country’s pig iron production to new highs. The demand for iron ore also rose to new highs as a result. Owing to the fatal dam break in a Brazilian iron ore mine, iron ore supplies had already tightened during this period, putting yet more upward pressure on prices.
In the European steel industry, this combination of falling demand, rising imports, and falling steel prices combined with massively increasing raw material costs led to a meltdown in earnings across the board. Thanks to its long-term partnerships with customers, however, the quality-focused Steel Division partly succeeded in cushioning the price pressures but was unable in the end to avoid the devastating impact of the sharp increase in the cost of raw materials (above all iron ore).
Demand in the sales market noticeably slowed throughout calendar year 2019. Toward the close of the year, many customer segments worked to reduce their inventories—especially the automotive industry, which had dramatically cut back production. While this sector showed clear signs of a recovery at the start of calendar year 2020 (which coincided with the start of the fourth quarter of the business year 2019/20), demand from the mechanical engineering sector remained restrained. This upward trend also affected the white goods and consumer goods industries. Developments in the construction industry were solid throughout the business year 2019/20.
There was little demand from the oil and natural gas industry during the same period, and low capacity utilization at all relevant heavy plate manufacturers led to fierce competition for the small number of projects in the pipeline market. voestalpine’s focus on the quality segment—for example, technologically sophisticated clad plates that are used in pipeline construction—turned out to be helpful indeed: It gave the Steel Division some room to maneuver despite the difficult market conditions.
The COVID-19 pandemic paralyzed the market at the end of the fourth business quarter, just as the recovery in most customer segments had started to cause noticeable jumps in demand for steel products.
Particularly the automotive industry shut down its production almost completely in mid-March 2020. No new orders were placed with suppliers, nor were any deliveries accepted. While other customer segments’ response was not quite as radical, most curtailed production to an extent unparalleled in living memory.
The sharp decline in orders led to a curtailment of production at the voestalpine Group’s steel facility in Linz, Austria, and a small furnace was turned off. Such a step had to be taken just once since the company went public in 1995, specifically, in 2009 owing to the global financial crisis that followed the collapse of Lehman Brothers, the U.S. investment bank.
Developments at the direct reduction plant in Corpus Christi, Texas, USA, were highly uneven during the business year 2019/20. While production remained stable throughout the business year, the deterioration in the market environment continued unabated. The market for hot briquetted iron (HBI) came under a lot of pressure due especially to sharply rising iron ore prices that went hand in hand with falling steel prices in North America.