While the overall economy in Europe slowed in the first quarter of the business year 2019/20, the differences between individual sectors continued to intensify. For example, growth in the service sector remained robust, whereas the manufacturing industry was wracked by substantial weaknesses. This is due primarily to the overall weakening of the global economy, which affects above all Europe’s export-oriented industries, and the slumping automotive industry in particular. Given that the voestalpine Group generates about two-thirds of its revenue in Europe, the economic climate in which it operates thus has obviously clouded over. All of the Group’s divisions are affected especially by developments in the automotive industry, but so far to very different degrees.
In North America, the longest uninterrupted economic expansion to date remained unbroken in the first three months of the current business year also, even though here too the positive signals are increasingly coming from the service industry, whereas the momentum of the manufacturing industry has dipped somewhat. By and large, this was rooted in export reductions due to trade policies as well as the downturn in the oil and natural gas industry, which also had negative effects on voestalpine. These factors notwithstanding, the voestalpine Group generates about 16% of its revenue in North America, thus profiting from its generally positive economic environment.
In South America, particularly in Brazil, the voestalpine Group generates about 3% of its revenue. The fact that revenue from this continent has been stagnating in recent years stems from the weakness of its economy. It displayed little momentum even in the first quarter of the current business year, although voestalpine’s local entities delivered solid performance. Brazil’s economic output since the start of the business year has been buffeted especially by declining raw materials exports, which still account for a significant portion of the country’s gross domestic product (GDP). Government agencies closed several mining operations following a fatal incident in a large iron ore mine. As one of the largest producers of iron ore worldwide, this affected not just Brazil itself but the global iron ore market on the whole, which saw a sharp decrease in the supply of certain ores.
In China, newly launched economic stimulus programs with a focus on the country’s infrastructure catapulted the domestic steel industry to new all-time highs. The resulting increase in demand for iron ore, together with the decrease in the supply of iron ore on the world market, triggered a sharp increase in iron ore prices, which continues to adversely affect the earnings particularly of the Steel Division and the Metal Engineering Division. But the voestalpine Group did profit in China from the economic stimulus programs in the railway infrastructure segment, which saw keen demand in the first business quarter for turnout systems “made by voestalpine.” As regards tool steel, however, the current trade conflicts have led to substantially weaker demand.
In sum, therefore, the voestalpine Group faced an overall weaker economic environment in the first quarter of the business year 2019/20. The positive momentum in North America was unable to offset the weakness of the economy in Europe, because the former is much more difficult to access owing to the Section 232 trade barriers. The developments in China had a greater impact on the voestalpine Group’s European production facilities than it had on voestalpine’s business in China itself. In a weakening market with declining volumes and prices for steel products, the unexpected increase in iron ore prices led to pressure on profit margins.
Yet the voestalpine Group’s broad portfolio also includes areas of business that delivered excellent performance in this challenging environment. This largely concerns both capital and investment goods such as
- Special materials for the aerospace industry;
- Complete systems for railway infrastructure projects;
- High-bay warehouse systems, where voestalpine provides the entire engineering above and beyond the steel structure itself as well as
- Welding systems, in regards to which voestalpine succeeded in the current business year to position itself as an integrated provider of both welding consumables and welding equipment.