1) Incl. sales to other corporate divisions
With their branded and special steels, the companies of the Steel Division constitute the core competence of our Group. The six operating companies of the division, located in Salzgitter, Peine, Ilsenburg and Dortmund, produce a broad range of steel products (flat steel and sections, plate, sheets piling, components for roofing and cladding and tailored blanks). The product program, especially for flat steel products, is geared to premium steel grades and qualities for use in sophisticated applications.
The European steel market was off to a relatively balanced start to the year with a positive trend. In the first quarter of the year, 45.6 million tons of crude steel were smelted in the EU27, which represents an increase of almost 7 % in comparison with a year ago. The rising number of new orders were evidence of brighter prospects in the German steel market as well. Among other factors, the sharp increase in the business activities of most steel processors has also underpinned this trend. As opposed to the previous year, the momentum is supported by real demand rather than essentially by the inventory cycle. The conditions prevailing at the start of the year in the steel markets were relatively favorable, not least due to the seemingly good balance between supply and the rather low level of imports from countries outside the EU. However, the appreciable increase in license applications for non-EU imports in the reporting period suggest the possibility of a trend reversal. German crude steel output came to 11.4 million tons in the first quarter of 2011, the highest figure since the autumn of 2008.
The international procurement markets have already put turbulent weeks behind them in the early months of 2011. The majority of markets reacted extremely nervously to changes in the environment, with high volatility prevailing. The main drivers were the record prices for iron ore and coking coal and a slump in the overseas freight market. From today's standpoint, it is difficult to predict the impact of the catastrophic situation in Japan and unforeseeable future developments in this country on the global economy and individual commodity prices, with expert opinions differing widely.
Last year the major commodity producers implemented a new price model on a quarterly basis geared to spot prices quoted for fine ore traded on the Chinese market. Soaring demand in the Middle East drove the index to new heights over the period from September 2010 to February 2011 and prices have peaked for the time being at 193 USD/dmt CFR China. Since then, prices have fluctuated strongly in corridor of between 165-185 USD/dmt. Derived from prices quoted in the months of September to November 2010, the benchmark Brazilian Carajas fines climbed to 149 USD/dmt FOB in the first quarter of 2011.
Similar to the iron ore market, the major exporters of coking coal announced the termination of the system of annual benchmark prices that has been in place for decades and switched to quarterly prices in April 2010. These prices are determined by the large producers together with their customers and applied to the European market. Since this time, prices for premium grades have settled consistently at a level above 200 USD/t FOB. The benchmark closing price for the first quarter of 2011 stood at 225 USD/t FOB. This development was caused by scarce availability due to the severe impact of flooding in Australia on production. BHP Billiton presented its customers with the demand for monthly prices at the end of February 2011 that was met with worldwide rejection. The threat of volume curtailments nonetheless forced a major part of European customers to accept the switch to monthly prices.
The international overseas freight market has come under huge pressure. The Baltic Exchange Dry Index has fallen steadily over the last six months and reached its provisional low of 1,043 points at the start of February compared with 2,700 points in October 2010. This puts the index close to the low levels posted at the turn of the year 2008/2009 when the shipping market was hit by the global financial crisis. The reasons for the current slump in the market are, however, different from two years ago: The surplus supply of shipping capacity has meanwhile reached such high levels that even cargo volumes generated by robust economic growth would no longer be able to keep pace.
At the end of 2010, scrap prices surged on the back of strong domestic and international demand, and high grades reached hitherto unforeseen peaks in January. Prices declined subsequently as a number of international consumers partly ceased to place orders. Political unrest in North Africa and the Middle East placed an additional burden on the market. Prices initially trended sideways in March before generally entering a downtrend. The decline in lower quality grades was sharper than that of better grades.
The international metal and alloy markets presented a very disparate picture in terms of the individual groups of materials in the first quarter of 2011: Premium alloys displayed greater volatility compared with the broadbased decline in the price of bulk alloys. Listed metals such as zinc, nickel, copper and aluminum were also exposed to strong fluctuations but at a high level.
Against this backdrop, the development of the Steel Division was as follows:
Consolidated order intake and orders in hand remained virtually unchanged from levels posted in the first three months of 2010.The production of crude steel (+10 %) and rolled steel (+6 %) of the steel companies, however, rose in the year-on-year comparison. Shipments were up by 11 %. The pleasing above-average increase in segment (+43 %) and external sales (+35 %) is a reflection of the generally higher selling prices in the flat steel and plate product segments. The Steel Division’s pre-tax profit came to € 9.4 million, which is a significant increase in comparison with the still extremely weak first quarter of 2010, and marked the return to the profit zone. A trend reversal in the sheet piling and section business has nonetheless still failed to materialize.
Steel-Sales (in € million)
Steel-EBT (in € million)
More detailed explanations on the individual companies:
The plate market began the new year with a discernible recovery. Inventory replenishing by the stockholding steel trade and brisk consumer demand, particularly in the wind offshore segment, mechanical engineering and boiler and container construction, were the main source of stimulus. Enquiry levels received support from expectations of further price hikes of input materials and the ongoing positive economic outlook. Reductions in the capacities of a number of European steelworks due to production downtime and investments and the comparatively low import quota also had a stabilizing effect. Accordingly, partly notable improvements in prices were commanded in the first quarter of 2011 in comparison with December 2010. The satisfactory order book of Ilsenburger Grobblech GmbH (ILG) in the first three months of 2010 was virtually re-attained during the reporting period. Orders in hand exceeded the considerably weaker year-earlier quarter. The good market situation boosted production and shipment volumes which, in conjunction with the favorable selling price trend, resulted in a substantial increase in sales. The higher costs of input materials were virtually compensated, enabling a clear pre-tax profit to be achieved in the first quarter of 2011 compared with the negative result a year ago.
The European construction industry did not provide any sustained stimulus at the start of 2011. Market events in the beams segment were characterized by pronounced volatility: The first quarter, for instance, began with pressure from great demand on producers due to the low level of inventories held by the stockholding steel trade. Climbing scrap prices and the subsequent anticipation of rising ex-works prices were also a contributing factor. Widespread uncertainty on how prices would develop caused hesitancy in placing orders in February. Only after price increases had been announced by steelworks from March 2011 onwards was an appreciable change in booking patterns in evidence, which resulted in available capacity being fully utilized. As from mid- March, there was a significant increase in inventories held by trading, with the corresponding negative effect on order activities during the remaining reporting period. New orders and orders in hand at Peiner Träger GmbH (PTG) fell below the previous year's level, mainly due to the aforementioned market conditions. The production of crude steel also declined in a year-on-year comparison owing especially to preparations for the parallel operation of the two furnaces. By contrast, rolled steel output was significantly higher than the year-earlier figure. Larger shipment volumes, together with an improvement in average selling prices as against the first quarter of 2010, lifted sales. The pre-tax loss was approximately halved in comparison to the previous year that was burdened by restructuring costs.
Production capacity utilization at HSP Hoesch Spundwand und Profil GmbH (HSP) remained unsatisfactory due to sales prospects in the sheet piling market which remained slow to brighten. The public sector is still not initiating any notable flood protection or infrastructure projects. Although HSP’s shipments and sales have improved discernibly as against the weak first quarter of 2010, the level achieved is still unsatisfactory. Selling prices implemented were not sufficient to fully compensate for the price hikes in the procurement markets, which meant that the pre-tax result remained negative.
In the first quarter of 2011, Salzgitter Bauelemente GmbH (SZBE) reported a gratifying increase in shipment and sales volumes, which benefited from the effects of good weather conditions in the construction industry as against the previous year's period. The pre-tax result broke even.
Germany's automotive industry continues to benefit from very strong growth momentum in the key international markets and the domestic market. Against this backdrop, Salzgitter Europlatinen GmbH (SZEP) achieved significant increases in shipment and sales in comparison with the first three months of 2010. The company raised the pre-tax result.