Market environment and business development

      For the Steel Division, the spread of the COVID-19 pandemic in Europe and the resulting lockdowns triggered meltdowns in demand across almost all of its customer segments at the start of the business year 2020/21. The division responded to this very serious development by intensifying cost and efficiency measures, launching a sales campaign, and temporarily shutting down one blast furnace to cut production capacity. Demand from the European steel market began to rebound after the Northern summer of 2020 and developed into a boom of sorts by the end of the reporting period.

      The consumer goods and white goods industries did well even during the difficult first phase early in the business year, and they returned to comfortable demand levels quite quickly. In and of themselves, the lockdowns resulted in strong demand for new household appliances and de­vices, which continued unabated through to the close of the reporting period.

      The construction industry presented a similar ­picture. It had to contend with construction site closures during the first lockdown in the Northern spring of 2020 but rapidly returned to the solid position it had occupied prior to the spread of COVID-19 as early as during the Northern summer. After dipping slightly for seasonal reasons during the Northern winter, demand returned to a high level by the end of the business year 2020/21.

      While the European automotive industry had to enact major production shutdowns in April 2020, production was ramped up again incrementally in May and June. The initially slow rebound developed considerable momentum over the remainder of the reporting period. As a result, the automotive segment soon started to see orders return to the levels prevailing prior to the outbreak of the pandemic. The division’s rapid and strong recovery was also driven by the need to replenish supply chains, given the sharp inventory reductions during the shutdowns over the Northern summer. However, inventories had not yet returned to normal levels by the end of the business year 2020/21 because the demand for cars rose more strongly and quickly than had generally been expected. Premium manufacturers, in particular, who also serve markets in North America and Asia, benefited from the positive market momentum in those areas. The unexpectedly strong rebound in demand triggered delivery bottlenecks in the semiconductor industry, with the result that automotive production had to be curtailed a bit during the business year’s final months ­owing to the lack of electronic parts. Demand for high-quality steel in vehicle production remained very high nonetheless.

      Aside from the sharply contracting economy in Europe, the mechanical engineering industry was also hammered by the limitations on travel to its traditional export markets which, in turn, caused a dramatic drop in demand during the first six months of the business year 2020/21. While it did not begin to recover until the end of calendar year 2020, by the final business quarter the market situation was very good in this segment, too.

      The energy industry—a key market of the heavy plate product segment—came under extreme pressure on the whole. Aside from the weakening of demand on account of COVID-19, this was mainly attributable to the very low level of investments in the face of low oil prices. This situation did not noticeably improve during the remainder of the business year 2020/21. Thanks to its focus on special applications, however, the heavy plate product segment managed to offset some of the declines arising from the unfavorable market conditions.

      Owing to the meltdown in demand, production capacities at the division’s plant in Linz, Austria, had to be adjusted in the first few months of the reporting period, and a small blast furnace had to be shut down temporarily. It was fully started up again in September 2020 thanks to the division’s focused working of the market and flexible approaches to production. The price of iron ore continued to rise during the business year 2020/21 despite the deep, global market distortions arising from the COVID-19 pandemic. This is rooted in the fact that China has developed into the world’s biggest steel producer. China succeeded in containing the pandemic within a fairly short time and used state-sponsored investment projects to drive the country’s production of crude steel to new highs. Coal, scrap, and energy are the other critical input materials required for the production of steel. Initially, the prices of these raw materials fell in response to the capacity cutbacks outside of China. The fact that steel production had once again expanded in Europe and North America caused prices to increase substantially toward the end of the reporting period, particularly those of scrap and iron ore.

      While steel prices in the European spot market had fallen at the start of the business year 2020/21 due to shrinking demand, they stabilized in the Northern summer and then quickly and significantly climbed again during the business year’s third quarter, developing yet more momentum through to the end of the reporting period. In the main, this was due to the unexpectedly rapid rebound in demand for steel and the fact that the ramp-up of production in Europe, where steel plants had been shut down, was delayed and sluggish in part. Add to that increases in raw ­material costs coupled with the low availability of steel imports on account of similar shortages of steel in North America and the highly ­dynamic steel market in China.

      At the start of the business year 2020/21, the Steel Division also had to contend with price declines in its short and medium-term business. The structure of its existing contracts, however, ensured not only that the price declines were smaller than those in the spot markets but also that the price increases in the reporting period’s second half did not take hold in the spot markets until after a minor delay.

      Given the steel production curtailments in both North America and Europe, the Group’s direct reduction plant in Texas, USA, was confronted with sharply lower demand during most of the first half of the business year 2020/21. Its success in acquiring new customers in the Far East enabled it to offset this weakness only in part. Thanks to stronger demand for steel in North America and the associated increase in the prices for input materials such as hot briquetted iron (HBI), however, the market environment improved significantly during the business year’s second half.