Steel Division

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

Market environment and business development

The European steel market, which was buffeted by materials shortages and supply chain bottlenecks at the start of the business year 2021/22, largely returned to normal after the Northern summer of 2021.

In addition to rising imports, this was also due to declining demand from the automotive industry. The lack of semiconductor chips forced the latter to curtail production yet again, this time in the Northern fall of 2021, impeding its ability to fully serve good demand in Europe’s passenger car market. The other market segments, especially the construction industry, continued to perform very well throughout the first nine months of the current business year.

Both the consumer goods and the white goods industries benefited as well from stable, high demand during the reporting period. While the difficulties in the supply of electronic components have affected a few customers in this segment, too, so far they have not reduced demand for the Steel Division’s steel products.

Thanks to the rebound at the start of the business year 2021/22, the mechanical engineering industry continued to benefit from strong orders particularly for high-quality steel grades throughout the reporting period.

Semiconductor supply chain disruptions have challenged automotive manufacturers since the beginning of the current business year. While the situation was initially expected to ease no later than during the Northern summer of 2021, it became clear as the business year wore on that the chip crisis would preoccupy first the automotive industry and then the automotive supplier industry for some time to come. In fact, the supply chain issues intensified yet further after the Northern summer of 2021. Numerous automotive production plants, especially in Europe, had to curtail production for short periods or even fully suspend it for a time. The situation finally became a bit more predictable toward the end of the reporting period, indicating that the chip crisis may have bottomed out in the Northern fall of 2021.

The Steel Division responded to this development by shifting production capacities usually geared to the automotive industry to other customer segments. It managed to ensure that sales volumes remained stable over extended periods and thus that manufacturing capacity utilization remained high despite automotive customers’ inability to properly plan order call-ups.

The energy sector—an important market for the heavy plate product segment—delivered posi­tive performance throughout the business year 2021/22 to date. Rising demand for crude oil and natural gas and the resulting increases in the price of these commodities fueled this development.

While the steel markets in Europe and North America maintained their overall momentum on the whole, toward the end of the reporting period 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 as well as 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 jumping to new highs in the first half of the current business year, the price of iron ore fell by almost half from its record levels in the Northern summer through to the end of the third business quarter. By contrast, the energy shortages throughout China caused the price of metallurgical coal to explode. At its peak in October 2021, the price had almost quadrupled from its level at the start of the business year 2021/22. While the situation did not ease at all until the end of the reporting period, metallurgical coal prices in the international commodities markets remain at historically high levels. Given the Steel Division’s specific procurement structure as well as logistical lags, the division had to contend with rising raw materials costs across the board during the first nine months of the current business year. This was further exacerbated in the third business quarter by sudden increases in the cost of energy, specifically, electricity and natural gas.

So far, rising steel prices have at least helped to offset these cost disadvantages. They reached a temporary high in the European spot market during the Northern summer of 2021, only to fall again slightly toward the end of the reporting period. The fact that the division’s steel prices climbed through to the end of the reporting period is due to its specific contracting structure.

The direct reduction plant in Texas, USA, profited from good demand for steel in North America.

Financial key performance indicators

The Steel Division’s key performance indicators (KPIs) reflect the significant improvement in its economic environment. They show that revenue for the first three quarters of the business year 2021/22 jumped 45.7% to EUR 4,306.2 million (Q 1 – Q 3 2020/21: EUR 2,956.4 million). Since delivery volumes rose moderately in the same period, the revenue increase is due primarily to substantially improved pricing. Contract prices for flat steel products surged throughout the current business year, especially due to the massive increases in the cost of raw materials. On the earnings side, rising production and delivery volumes along with the expansion of the division’s gross margin had a positive effect. In the first three quarters of the business year 2021/22, EBITDA soared 167.1% to EUR 782.7 million with a margin of 18.2% (Q 1 – Q 3 2020/21: EUR 293.0 million, margin of 9.9%). The upward trend in EBIT was even more pronounced. At EUR –119.6 million (margin of –4.0%), EBIT for the same period of the previous business year was negative due to challenging conditions overall and, not least, roughly EUR 170 million in non-recurring effects attributable to the direct reduction plant in Texas, USA. The Steel Division’s EBIT for the reporting period is EUR 556.5 million with a margin of 12.9%.

The quarter-on-quarter (QoQ) comparison of the division’s performance in the current business year’s second and third quarters shows an increase in revenue and a stable trend in earnings. Revenue for the third quarter of the current business year rose 13.9% to EUR 1,588.8 million (Q 2 2021/22: EUR 1,395.4 million). Increases in delivery volumes contributed as much to this increase as did the implementation of higher contract prices in the third business quarter. At EUR 261.5 million (margin of 16.5%), EBITDA for the third business quarter of 2021/22 remained steady quarter on quarter (Q 2 2021/22: EUR 258.2 million, margin of 18.5%). EBIT for the third quarter followed a similar track, coming in at EUR 186.3 million with a margin of 11.7% (Q 2 2021/22: EUR 183.3 million, margin of 13.1%).