1) Incl. sales to other corporate divisions
As the cooling of the global economy, which set in the spring, had not yet had any notable effect on global crude steel production by the end of the reporting period, in the course of the year 4,6 % more steel was produced than in the previous year. Nonetheless, it was evident that momentum was slowing, a trend set to continue in the months ahead. Thus the overall production of crude steel in the third quarter was, for instance, 1.7 % higher in comparison with the previous year's period; however, by September the figure fell below the year-earlier figure for the first time (-3.1 %).
The year initially started well for European steel processing companies, with business exceeding the expectations. At the start of the second half-year, the business climate then darkened notably. The trend of order intake had been in decline for quite some time, a development which was initially interpreted in the first quarter as a technical countermovement in response to the flood of orders in 2007. As from the second quarter, the effects of the global economic slowdown were having more of a visible impact: A number of different sectors - headed by the automotive industry - recorded lower order intake. In the wake of the critical events in the financial markets at the end of September, the business outlook of a number of sectors deteriorated dramatically. Supply in the European flat steel market ran at a generally high level during the reporting period, as both orders placed and the capacity utilization of European manufacturers were generally most satisfactory. In the period from January to August, for instance, a good 4 % more flat steel orders were received than in the previous year; recently, however, this trend has slackened. During the summer months, imports from non-EU countries rose again sharply, as against net imports which declined during the first half of the year. Against the background of drastic price hikes for raw materials, energy and transport services, steel prices have risen steadily since the start of the year and reached unprecedented record levels in July and August. From September onwards, commodity products in the global spot markets recorded the first significant price declines.
The fixing of global market prices for iron ore had been concluded for the most part by the beginning of the delivery year 2008. The steel industry had to absorb dramatic price increases in iron ore (fine ore +66 %, pellets +86.7 % and lump ore +96.5 %). In a market that was for the most part subject to demand pressure, Australian producers subsequently implemented even higher prices for fine ore with their Asian customers.
Owing to the flooding of Australian mines, the global market for coking coal was impacted by the consequences of massive production declines in the first half of the year. The resulting shortfall in supply of high-grade coking coal came to between 3 – 5 million tons and was reflected in a record price hike for Australian coal (+ 212 %).
Over the course of the year to date, different market trends have been discernible in metals and alloys in the different materials groups. Strong demand, energy supply bottlenecks and production losses due to weather changes drove up the price of alloys. By contrast, zinc and nickel quotations eased.
The scrap market was as capricious over the course of the year as never before: After having risen notably at the start of the first quarter, by mid-year scrap prices had soared to almost double those of December 2007, only to subsequently fall back to this level again in the third quarter.
The impact of the financial crisis was increasingly reflected in the price trend of many raw materials at the end of the reporting period. For instance, raw material listed at the stock exchange suffered sharp price declines. The price of industrial metals such as copper, nickel and zinc, but also commodities traded worldwide such as crude oil and thermal coal, fell dramatically in comparison with the first half-year. The effects on the pending annual round of negotiations for 2009 remain to be seen.
Sea freight rates that are particularly important with regard to purchasing iron ore and coal, were initially very volatile in the wake of developments in the global economy and then went into a steep downward spiral in the third quarter. After reaching historically high levels in May and June of this year, quotations were considerably below the level at the start of the year by the end of the reporting period.
The Steel Division developed as follows: New orders rose by 7 % in contrast to orders in hand that fell by 14 % in a year-on-year comparison, mainly due to a deliberate reduction of surplus orders of Peiner Träger GmbH (PTG), but also due to the lower level of new orders at HSP Hoesch Spundwand and Profil GmbH (HSP). Crude steel production (4,150 Tt) and rolled steel production (4,294 Tt) were more or less stable, and processing rose marginally (192 Tt). Shipments advanced by 3 %, buoyed by still very strong demand. New record figures for segment and external sales revenues reflected the overall excellent level of selling prices.
Despite the gratifying profit performance of all companies belonging to the Steel Division, the result of the previous year was not attained, particularly owing to the sections business which was unable to repeat the record result of the previous year. Nonetheless profit remained at a very satisfactory high level. In this context, it should be taken into account that € 46.7 million in additional expenses for raw materials and energy have been accounted for in the reporting period. This measure was taken in view of the fact that, compounding the initial impact of the price increases effective as from January 1, 2008, and beyond the mere application of IFRS principles, the associated aspect under IFRS of making allowance for replacing used inventories from 2007 was taken account of in the first half year.
In the first nine months of the year, Salzgitter Flachstahl GmbH (SZFG) produced 3,359 Tt of crude steel, which is almost as much as in the previous year’s period. As a result, the scheduled relining of Blast Furnace C had virtually no effect on production. Due to the new production record of the hot rolling mill, which also reflected the excellent order books, the production of rolled steel was higher than the year-earlier level. Another indication of how good demand was, were the new orders placed, which were 15 % up on the previous year’s figure (excluding orders between companies in the division), a trend which lost momentum over the course of the summer. The order level was also higher year on year. Shipments reached a new all-time high owing to improved volumes of hot and cold rolled flat products. At the same time, the excellent selling price level resulted in new record revenues. The selling price trend in the short- and long-term business did, however, not fully cover the burdens accruing from the sharp increases in raw materials and slabs sourced externally, although the selling prices in the quarterly business once more increased sharply in early July and adjustments were made to some of the annual contracts. The aggregated positive effects on profit were affected more by the persistent uptrend in the cost of raw materials and slabs sourced externally. The pre-tax result fell marginally short of the previous year’s figure, also due to the recognition of additional costs for materials.
Ilsenburger Grobblech GmbH (ILG) maintained the positive performance of the preceding months during the third quarter of 2008 as well. Demand for plate, however, was showing the first signs of being impacted by a cooling economy, with mainly sectors associated with building, such as construction machinery producers, being affected by a downturn in orders. The growing volume of Chinese imports and a broad offering of socalled re-rollers (Western European rolling mills with an Eastern European crude steel basis) in simple grades, in conjunction with stockholding steel traders reducing their inventories, resulted in prices in this market segment recently even going into decline. There were only individual cases of delays in the project business caused by uncertainty about additional lending by banks. Against the background of a still satisfactory market in high-grade products, considerable price increases can be achieved in the fourth quarter. In the reporting period, the volumerelated order intake of ILG was notably higher than in the previous year's period. Rising selling prices caused the value of order intake and of inventories to grow disproportionately. An advantageous order structure, combined with a stable availability of production facilities, brought the production of rolled steel to a small volume increase versus the year-earlier level. Greater volumes of shipments and higher selling prices resulted in a corresponding sales increase in comparison with 2007. The year-earlier pre-tax result was marginally underachieved owing to the impact of the extreme cost increases, which were also having there effects here.
Whereas, in the first half of the year, European steel mills were unable to fully keep abreast of brisk demand for section products, order activity in September was perceptibly reticent. Increased supply from Southern Europe resulted in inventories rising, mainly in the case of smaller steel traders. Moreover, the aforementioned scrap price trend led to consumers’ reluctance to buy as, given the current circumstances, there is evidently speculation that market prices will fall further. Peiner Träger GmbH (PTG) was only affected to a limited extent as customers called up the contractual volumes as agreed. The orders to be processed ensured that capacity utilization remained at a consistently high level. Order book figures and the volume of orders in hand of PTG in particular, were below the record level of the previous year, as surplus orders were scaled back deliberately in view of volatile raw materials costs.
With shipment volumes remaining more or less stable, better selling prices achieved through raising prices and scrap surcharges were reflected in the notably higher revenue figures as against the previous year. Production remained virtually at the same level. In the wake of renewed price increases in raw materials and energy sourced externally, plus delays in the passing on of the extremely volatile scrap costs, the pre-tax result fell markedly short of the year-earlier figure.
Irrespective of the notable reluctance to buy which began in the second half of the year, shipments of HSP Hoesch Spundwand und Profil GmbH (HSP) held the previous year’s level. Price increases implemented resulted in a disproportionate increase in revenues and a most satisfactory pre-tax profit. Shipments and sales of Salzgitter Bauelemente GmbH (SZBE) rose considerably, boosted by robust demand at the start of the year. The consistent adjusting of selling prices to the purchase prices of input materials entailed a pre-tax result which was higher in comparison with the previous year. A decline in orders placed by major customer sectors caused shipments of Salzgitter Europlatinen GmbH (SZEP) to fall marginally short of the previous year’s level and caused a corresponding decline in profit. Revenues remained at an excellent level.
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