Economic environment and course of business

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

      EUROPE

      Economic momentum weakened further in the first half of the business year 2023/24. Particularly in the second half of the reporting period, the overall picture in Europe became noticeably more negative. The continuing prime rate increases by the European Central Bank (ECB) are increasingly making themselves felt in lower lending volumes. Investment in the private sector and industry was at a very low level. The slump in residential construction in particular is a direct consequence of the marked increases in prime rates. Weak demand for material goods is having an increasingly negative impact on industrial production.

      While the service sector showed a robust performance for much of the first half of the business year 2023/24, this sector also suffered initial downward trends towards the end of the reporting period.

      The ECB’s efforts to limit inflation with significant interest rate hikes were countered by energy price developments. As these rose again in the second quarter of the business year 2023/24, inflation rates did not fall as sharply as expected.

      For voestalpine, this economic environment meant declining demand from the construction, mechanical engineering, consumer goods, and capital goods sectors in the first half of the business year 2023/24. In particular, the toolmaking sector, which is supplied with tool steel by the High Performance Metals Division, recorded very weak demand. At the same time, this market was dominated by high imports from Asia and in particular China.

      In the automotive industry, the easing of the global supply chain situation was noticeable and reflected in improved production. There was also good demand from the energy industry. The rail and aerospace industries continued to perform very well, bucking the overall economic trend.

      USA/NORTH AMERICA

      In the first half of the business year 2023/24 economic growth slowed, but the U.S. economy remained on a growth track. The second quarter of the business year 2023/24 even saw surprisingly strong growth, resulting in a significant increase in the forecast for the full year. Although individual sectors such as the construction industry were confronted with declines, they were not across the board and not as severe as feared. Other sectors relevant to voestalpine proved robust.

      In the U.S., the monetary policy of the FED (Federal Reserve, central bank of the U.S.), which began raising the prime rates earlier than the ECB, showed its effect. The resulting positive effects on inflation were therefore already visible in the first half of the business year 2023/24. In this environment, private consumption remained stable. Unemployment also remained at a very low level.

      Demand for voestalpine products remained satisfactory overall, despite declines in individual segments. Positive impulses came primarily from the energy industry and railway systems, but also from the aerospace sector. The capital goods sector lost some momentum, but developed better than the European market.

      BRAZIL/SOUTH AMERICA

      Brazil faced high inflation much earlier than North America and Europe, to which the Brazilian central bank responded with a restrictive interest rate policy. Brazil has already overcame the peak of inflation in the first half of the business year 2023/24, and the Brazilian national bank already began to cut prime rates again in the second quarter of the business year 2023/24.

      In this environment, the Brazilian economy proved very robust in the first half of the business year 2023/24. Drivers of this momentum, which leveled off toward the end of the second quarter of the business year 2023/24, included a record harvest, which in turn resulted in high food production. In addition, the oil and gas industry recorded high global demand. High wage growth also triggered robust private consumption.

      The development of the Brazilian economy is also reflected in the performance of voestalpine sites. For example, the boom in the photovoltaic sector increased demand for special profiles. The production of special steels benefited from the internationally high demand for products for the oil and gas industry.

      CHINA/ASIA

      Following the end of the strict COVID-19 lockdown measures at the beginning of 2023, the expected upturn in the Chinese economy occurred. However, the growth momentum weakened again at the beginning of the first half of the business year 2023/24. One main reason was the continuing problems in the Chinese real estate sector, which led to a massive decline in the construction industry. Subsequently, the construction supply industry and the steel industry were affected by this downturn. With a time lag, the problems in the real estate sector also had a negative impact on the household appliance industry, where demand for washing machines, TV sets and the like slowed down significantly. In addition, the poor sentiment in the course of the first half of the business year 2023/24 impacted private consumption and thus weighed on the consumer goods industry and the service sector.

      To counter this negative trend, the Chinese central government cut interest rates and relaxed regulations in the real estate sector. Although these measures largely stabilized the situation, they did not trigger a major trend reversal. Nevertheless, the Chinese economy is still in growth mode, although growth rates are well below those of the past and below expectations.

      A special situation arose in the Chinese steel industry. Although the construction sector, the largest steel-consuming sector of the economy, is weak and has less demand for steel, Chinese steel manufacturers produced at record levels and sold the material on international export markets. This practice, which was already common in the past, led to massive pressure on the international steel markets.

      Against this background, voestalpine’s Chinese sites performed well. However, the aggressive export of Chinese tool steel in particular had a negative impact on the European sites of the High Performance Metals Division.