General Business Conditions

Triggered by the international financial crisis, the global economy plunged into the most dramatic downturn seen since the end of the Second World War in the winter months of 2008/2009. The crash into recession was so extreme that even some emerging markets, which had posted extremely high growth rates up until then, suffered considerable declines. The extensive financial measures taken by the governments of the industrial nations to boost the economy and to stabilize the banking sector prevented the collapse of the global financial system and, at the same time, laid the foundations for an easing of the tense situation. The global economy has been on the path to recovery since the spring of 2009, also thanks to the extensive economic rescue programs. In contrast to the downturn, the individual markets did not rally as one and lacked strong impetus. The emerging markets of Asia in particular, with China as the main economic engine, saw demand pick up momentum relatively swiftly again, supported by a slew of measures launched by the government to stimulate the economy. By contrast, recovery in the industrial nations was markedly slower. As virtually everywhere support came from the building up of inventories, which had been drastically scaled back, and government aid programs, the upswing could not be considered self-supporting at year-end. The global economy posted negative growth of – 0.8 % in 2009, which is the first time since 1946 (2008: + 3.6 %).

Overall economic activity in the European Union had stabilized at a low level by mid-year. Accordingly, the gross domestic product edged up for the first time in the summer although the figure varied widely in the individual member countries: Whereas Spain and Great Britain remained in recession, France and Italy, and above all Germany, became the drivers of a moderate recovery. All in all, the economy of the European Union contracted by 4.0 % in 2009 (2008: + 0.9 %). In Germany, overall economic output had already firmed up the spring and gained ground in the subsequent months, thereby putting an end to the downtrend in capital expenditure and exports. Due to the very high dependency of Germany on exports, in conjunction with the negative developments experienced by its trading partners, the decline in the gross domestic product was more pronounced in comparison to most other European countries and resulted in a drop of 4.8 % (2008: +1.5 %) as against the previous year.

In tandem with the recession of the global economy, the global production of crude steel in 2009 contracted by 8 % to 1.22 billion tons. The strong growth of Chinese production was the only factor preventing the downturn from being even more severe. Apart from China, India was the only other country to raise its crude steel production. Output everywhere else fell by a fifth, which is the sharpest drop ever experienced in the post-war period. The regions most strongly affected were the European Union and North America with –29 % and –35 %, respectively. A look at the year as a whole showed that global crude steel output had already stabilized by the start of the year and had started to climb steadily. By the summer, a broad-based recovery was discernible, with a considerable reduction in production backlogs in the European Union as against the previous year. Nonetheless, the plant capacity utilization averaged less than 60 % with a crude steel output of just under 140 million tons. The extent of the slump is also evident from a regional perspective: All larger EU sub-markets reported declines of 30 % at minimum over the course of the year ended. Likewise the European rolled steel market supply (supply within the EU and imports) dropped by around one third to approximately 125 million tons in the reporting year.

In Germany specifically customers in the domestic steel industry such as the capital goods sectors, vehicle construction and steel tubes were hit hard by the crisis. Beyond this, there was strong move towards reducing inventory levels, which was an additional burden to the order situation of steel producers. As a consequence, the real demand for steel contracted by around one fifth, and the crude steel production sank to just under 33 million tons (–28 %), which is its lowest level since the early 1960’s. Over the course of the year, however, there was a substantial recovery – sustained by new orders rising. The production of crude steel climbed steadily to reach an annualized 40 million tons in the fourth quarter, resulting in capacity utilization growing from below 50 % to recently around 70 %. One of the main reasons behind this development was that, after massive destocking at the start of the year, steel processors began to purchase more material again from producers. New orders nonetheless stagnated at a comparatively low level even at the end of the reporting period.

The crisis-ridden economic environment was clearly reflected in the business activities of global steel trading: Thus the significantly tighter lending conditions, for instance for automotive suppliers and the metal industry, restricted the options for financing inventories, thereby considerably reducing the volume of stocks and new orders. Moreover, as the trade credit insurers limited their credit insurance, the default risk for commercial credit arrangements was increasingly passed to steel trading.

The contraction in demand was most notable in the industrial nations with intensive steel consumption and a high proportion of exports. The slump in Europe and on the North American continent also exerted an influence on the developing and emerging markets, which meant that the consequences of the recession were felt worldwide. In the Middle East, tumbling oil prices put a discernible damper on investment activity. From the fourth quarter onwards, there were initial signs of a stabilization of prices and sales volumes – mainly in China –, but not for all products and not to the same degree.

Trends in Germany developed virtually in tandem with global events. Important customer sectors of steel trading such as, for instance, the construction industry and mechanical engineering, whose business was still flourishing in the previous year, were severely affected by the downswing. The mechanical engineering segment in particular suffered greatly from the decline in exports induced by its strong export dependency.

Similarly, the dramatic decline in order intake, which had been prevalent from the third quarter of 2008 onwards in virtually all industries, also had an impact on global steel tubes production. Global steel tubes production in 2009 totaled 105 million tons (–17 % in a year-on-year comparison) even though Chinese tubes producers raised their output by as much as 7 % to 50 million tons. The demand for seamless steel tubes was impacted in particular by the shortfall in orders placed by the energy sector due to the sharp drop in oil and gas prices; consequently production dropped to a mere 31 million tons (–21 %). Despite the comparatively healthy order book of individual manufacturers, the production of large-diameter tubes also declined to 14.5 million tons (–22 %).

The production output of the European steel tubes producers slumped by almost one third to a figure close to 12 million tons. This drastic reduction in volume affected all product segments, with the precision steel tubes segment sustaining the largest declines.

Although the production volume of the large-diameter tubes segment remained virtually unchanged at 1.1 million tons thanks to the high level of orders placed in the first half-year 2008, the German steel tubes industry was also unable to decouple from the downtrend in the markets. All in all, production plummeted by 25 % to 2.9 million tons in Germany.

Following on from an extended upswing, German mechanical engineering fell into a deep recession in 2009. The industry, with its strong export orientation, had to absorb sharp declines in sales particularly in Western Europe and North America. There was also a slowdown in the high-growth markets of China and India in comparison with previous years. According to calculations by the German Engineering Federation (VDMA) this sector of industry sustained a dramatic decline in new orders in 2009 (– 38 %). Having been partially cushioned by existing orders at the start of the year, the average capacity utilization subsequently dropped to 70.7 % (2008: 88.9 %), and real decline in production came to just under 25 %.

Filling and packaging machinery production, which is the focus of the Technology Division, accounting for approximately 90 % of its sales revenues, suffered a massive setback in 2009 following on from years of steady growth. The uncertainty about how the economy would develop and the financially critical situation of some companies in the beer industry subject to large-scale acquisitions, caused great investment reticence on the part of food and beverages producers: purchasing new equipment and facilities was rare and only done if there was no option for postponement; new orders received were mainly for replacement investments and services. At the same time, the price war in the competitive environment was exacerbated by severe capacity underutilization.

This had serious consequences for the order books of the filling and packaging machinery industry. Order intake, as calculated by the VDMA, was 27 % below the previous year’s figure, and thus sales declined by 20 %. All manufacturers came under extreme pressure. In contrast to other areas in mechanical engineering, there were, however, no structural sales problems in beverages technology. According to market research conducted by renowned research institutes, the volume of packaged beverages is even set to grow in the years ahead. The optimistic statements made by exhibitors and visitors of the ”drinktec 2009”, the global trade fair for beverages and liquid food technology, provided reasons to believe that the machinery and plant engineering companies active in the filling and packaging machinery industry will be able to emerge from the crisis ahead of the overall mechanical engineering segment.

The remaining special machinery construction segments comprised under the Technology Division, such as shoe machinery, but particularly injection molding machinery, developed in line with the negative overall picture that German machine building presented in the past year.