General Business Conditions
Gradual recovery in the global economy
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.
Overall Economic Indicators Germany
1) Source: German Federal Statistical Office
2) Source: German Central Bank
The global recession hits the steel industry head on
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.
Crude Steel Production World
Damper on demand accompanied by price erosion in global 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.
Tubes market impacted by production downturn across all product segments
Global Steel Tubes Production according to Production Methods
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.
Slump of around 25 percent in annual average machine production
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.
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