Steel Division

This report is a translation of the original report in German, which is solely valid.

Market Environment and Business Development

The unusual dynamics in the European steel market at the start of the business year 2021/22 that were marked by both shortages in materials and delivery bottlenecks largely returned to normal toward the end of the reporting period.

Besides rising imports, this was mainly due to the decline in demand from the automotive industry which, in turn, cannot fully satisfy high demand for cars owing to the lack of semiconductors (“chip crisis”). Demand in the Steel Division’s other market segments remained high throughout the current business year’s first half.

The construction industry, in particular, managed to maintain the pronounced momentum throughout the reporting period.

While the consumer goods and white goods industries also benefited from stable, high demand during the business year’s first six months, customers in this segment, too, are affected by difficulties in the supply of electronic components. So far, however, this issue has not triggered a decline in the demand for the Steel Division’s steel products.

The mechanical engineering industry succeeded in maintaining the strong momentum in demand, especially for high-quality steel grades, from the start of the business year through the Northern summer.

In contrast to what the automotive industry has been expecting and has even communicated, the semiconductor supply chain disruptions did not get resolved over the Northern summer months. Given the lack of components, many automotive manufacturers had to repeatedly suspend production for short periods even after the summer had ended. In a few cases, production lines were even stopped completely for extended periods of time. The unexpected continuation of this known problem further depressed order call-ups after the seasonally weak Northern summer, particularly toward the end of the reporting period (i.e., the second business quarter). Because it was not possible to fully divert capacities in terms of materials and production to other market segments on such short notice, delivery volumes in the Steel Division decreased while inventories of finished products increased.

The energy sector, which is a key market for the division’s heavy plate product segment, delivered positive performance throughout the first half of the business year 2021/22. This was due primarily to growing demand thanks to rising prices for crude oil and natural gas.

While the steel markets in Europe and North America largely maintained their overall momentum, toward the end of the business year’s first half China saw a decline in steel production for the very first time in its recent history. Aside from the expiration of economic stimulus measures, this was also due to the declining momentum in the real property sector. Add to that governmentally prescribed production cutbacks for environmental reasons. These developments had a direct impact on the global commodities markets, because China has by far the greatest steel production capacities worldwide. After a years-long upward trajectory, therefore, the price of iron ore fell by almost half from its record levels starting in the Northern summer through to the end of the reporting period. By contrast, the energy shortages in China caused the price of metallurgical coal to explode. Ultimately, however, these effects largely cancel each other out. Given the Steel Division’s specific procurement structure as well as the delays stemming from logistical issues, all of this resulted in rising raw materials costs across the board throughout the first half of the business year 2021/22. Rising steel prices managed at least to offset these effects. They reached their temporary high in the European spot market during the Northern summer, only to fall again slightly toward the end of the reporting period. The fact that the division’s steel prices rose through to the end of the reporting period is due to its specific contracting structure.

Given the steel boom in North America that continues unabated, the direct reduction plant in Texas, USA, also developed along a positive trajectory.

Financial Key Performance Indicators

While the key performance indicators (KPIs) of the Steel Division in the previous business year were impacted by the economic consequences of the COVID-19 pandemic, its KPIs for the reporting period show the complete opposite. In the first half of the business year 2021/22, revenue climbed by 48.5% to EUR 2,717.4 million (H 1 2020/21: EUR 1,830.5 million). The price effect had an even greater impact on this number than the increase in delivery volumes. The contract prices for flat steel products rose dramatically in the past few quarters due to the massive increase in the cost of raw materials and the excellent momentum in the steel industry.

The Steel Division boosted EBITDA many times over, from EUR 161.6 million (margin of 8.8%) in the first half of 2020/21 to EUR 521.2 million (margin of 19.2%) in the first half of 2021/22. The Texas-based direct reduction plant made a material contribution to the significant increase in the operating result. The Steel Division’s EBIT for the reporting period jumped to EUR 370.2 million (margin of 13.6%), up from EUR –168.7 million (margin of –9.2%) a year earlier. Non-recurring effects (impairment losses) of EUR 167.6 million at the Texas plant had put a damper on EBIT in the previous year.

Quarter on quarter (QoQ), the division’s revenue rose in Q 2 2021/22 by 5.6% to EUR 1,395.4 million (Q 1 2021/22: EUR 1,322.0 million). While prices improved substantially, the sales volume lost steam for seasonal reasons as well as due to automotive customers’ volatile order call-ups. The Steel Division delivered stable and good QoQ earnings performance. EBITDA decreased but marginally by 1.8%, from EUR 263.0 million to EUR 258.2 million, with the EBITDA margin sliding from 19.9% to 18.5%. EBIT declined by 1.9%, from EUR 186.9 million (margin of 14.1%) to EUR 183.3 million (margin of 13.1%).