Steel Division

Market environment and business development

The good economic environment for the steel industry in Europe weakened toward the end of the past year already. The first quarter of the business year 2019/20 saw demand cooling off dramatically combined with sharply rising production costs stemming from the previously mentioned massive increases in iron ore prices.

Additionally, the situation in the European steel market was aggravated by large imports of both steel and steel products which, in tandem with declining demand, inevitably pushed down European steel prices. The so-called “Safeguard Measures” that the European Union adopted as protective measures in light of the global trade war did not have much impact and were not very effective.

As far as the customer segments of the Steel Division are concerned, orders from its most important segment, the automotive industry, were down slightly, thus reflecting the year-over-year reduction in Europe’s automotive production. Besides the slowing momentum in the white goods and consumer goods industry, most recently the division’s activities in the export-heavy mechanical engineering segment were restrained on account of both the globally growing protectionism and the cooling of the economy worldwide. Only the construction industry is as robust as before. Growth in the project environment for oil and natural gas pipelines, for which the Heavy Plate business segment produces high-quality pipeline plates, was weak too. Solely the momentum in the specialty segment involving the most sophisticated clad plates is satisfactory.

Against this backdrop, sales of strip steel and heavy plate dropped slightly year over year in the first quarter of the business year 2019/20. The start of the new business year at the direct reduction plant in Corpus Christi, Texas, USA, saw stable production processes and satisfactory market developments, especially in North America. Most recently, however, there have been growing signs that the high iron prices will adversely affect this market too.

Development of the key figures

The key performance indicators of the Steel Division reflect the increasingly challenging conditions in the European steel sector. As a result, revenue fell in the first quarter of the business year 2019/20 by 7.4%, from EUR 1,276.4 million in the same quarter of the previous year to EUR 1,182.1 million in the current reporting period. Besides slightly declining prices, the lower sales volume accounts for about 5% of the weakening of revenue. In addition, the product mix in the Heavy Plate business segment has shrunk somewhat due to unusually strong demand for clad special steel plates.

Decreasing revenue combined with significantly increasing production costs that stem from the sharp rise in iron ore prices have led, in sum, to lower earnings. Accordingly, EBITDA fell by almost one third year over year, from EUR 223.9 million in the first quarter of the business year 2018/19 to EUR 150.6 million in the reporting quarter. In keeping with this outcome, the EBITDA margin dropped from 17.5% to 12.7%.