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 /  /  /  / Plate / Section Steel Business Unit

Performance and General Business Conditions of the Business Units

Plate / Section Steel Business Unit

Key data 2016 20151)
Order intake kt 2,199 2,199
Order backlog as of 12/31 kt 390 334
Crude steel production kt 1,091 1,039
Rolled steel production kt 2,227 2,428
Shipments kt 2,176 2,410
Segment sales2) € m 1,423.4 1,733.8
Sales to other segments/Group companies € m -681.5 -825.0
External sales3) € m 741.8 908.8
Earnings before taxes (EBT) € m -32.1 -74.1
EBIT before depreciation and amortization (EBITDA)4) € m 26.3 -8.2
Earnings before interest and taxes (EBIT)4) € m -19.9 -57.2

The Plate / Section Steel Business Unit incorporates the companies of the Group that primarily serve customers in the project-oriented construction and infrastructure sectors. The business unit comprises Ilsenburger Grobblech GmbH (ILG) and Salzgitter Mannesmann Grobblech GmbH (MGB) as well as Peiner Träger GmbH (PTG). ILG and MGB produce a wide range of high-grade plate products. The most important customers include heavy mechanical engineering, tube and pipe producers, as well as wind turbine manufacturers. PTG supplies to construction and civil engineering products throughout the whole of Europe. The integration of DEUMU Deutsche Erz- und Metall-Union GmbH (DMU) as a scrap supplier of Peiner Träger GmbH (PTG) permits logistics processes to be more closely and flexibly coordinated. HSP Hoesch Spundwand und Profil GmbH (HSP) that also belonged to the business unit discontinued its business activities in December 2015. Almost all the employees left the company in the year now ended. Operations are being wound down.

Market development
The main markets of the companies that are part of the business unit consist of those for heavy plate, including delivery to the large-diameter pipe industry, and those for sections. The ongoing fundamental stagnation in demand in the European steel market in 2016 as well, combined with surplus capacity in Europe, the cautious ordering pattern of trade and processors, and massive imports into the EU led to difficult conditions in the relevant markets. Above all the plate market was confronted with ruinous price declines due to the flood of imports at dumping prices. A discernible market stabilization only set in upon the announcement of the awarding of the offshore Nord Stream 2 pipeline from the end March onward. In addition, import volumes from China entered a downtrend over the course of the year due to the announcement of an anti-dumping action filed against Chinese imports of heavy plate, as well as the announcement of provisional anti-dumping duties of up to 74 % in October. The development of the volume and selling prices of higher-end grades were maintained at a stable level.

The competitive situation in the European section market remained tense in 2016 as production capacities continued to exceed demand by almost double. Market development was determined by extremely volatile scrap prices that triggered alternating phases of partly very high and short- lived demand, followed by months with significantly lower order volumes. In contrast to the heavy plate market, Chinese and Russian imports into the EU 28 were virtually immaterial.

Slab supplies
The plate companies are supplied with input material within the group via Salzgitter Flachstahl GmbH (SZFG) and Hüttenwerke Krupp Mannesmann GmbH (HKM), with SZFG delivering to ILG and HKM to MGB in particular.

Steel scrap
Steel scrap is the section steel business’ most important input material. Every year around 1.1 million tons of this material is melted down into crude steel in PTG’s two electric arc furnaces. The market development of this material is therefore particularly relevant for the company. At the beginning of the new financial year, the German steelworks’ demand for scrap steel settled at supply levels, enabling consumers to stock up initially at unchanged or marginally lower prices. From March onward, the improved capacity utilization of a number of domestic customers resulted in greater scrap requirements. Combined with concurrently high demand from Turkish importers, this drove prices up by 15 to 20 €/t. In the months of April and May, the market continued to recover at an unexpectedly strong pace. Depending on the plant and grade, prices in Germany therefore rose again by 65 up to 105 €/t. From June onward, Western European processors ordered considerably lower volumes and, compounded by the additional weakening of Turkish demand, the ripple effect of exports dwindled. The high level of inventories resulted in excess supply, which caused steel scrap prices to shed between 40 and 70 €/t. Whereas, at the start of the third quarter, the downtrend persisted, prices climbed in August and subsequently stabilized at the level reached in September. After the initial decline in scrap steel prices in the fourth quarter, brisk demand by Turkish consumers, accompanied by significantly higher international raw materials prices and the rising dollar, pushed up export prices, which then led to further declines in the shipment volumes in the deep sea market. In order to counteract this trend, domestic plants raised their prices in November by between 30 and €40/t and again in December by between 5 and 10 €/t.

Business development
The order intake of the Plate / Section Steel Business Unit matched the year earlier figure. The downturn resulting from the discontinuation of the sheet piling product segment was compensated through increases at MGB and PTG. Orders on hand in 2016 were higher year on year since rolled steel production and shipments settled accordingly at a lower year-on-year level. This was mainly attributable to the discontinuation of the sheet piling business as well as due to lower volumes in the heavy plate sector. Segment and external sales entered a downtrend due to selling prices and lower shipments.

Although the business unit improved its performance compared with 2015, it nonetheless delivered another negative pre-tax result (€ –32.1 million €; 2015: € –74.1 million). This figure includes order-related provisions and € 6.3 million in expenses for measures aimed at structural improvements in the plate companies. PTG achieved a pre-tax profit for the third year in a row, substantiating the company’s sound operations, and entailed a write-up of € 25.0 million due to its sustainability. By contrast, the plate companies delivered a notably negative result. Despite the efficiency programs, initiated in both companies at the start of 2016, the losses that were primarily the result of the ruinous price and earnings situation caused by imports in the first half of 2016 and the processing of low-margin orders from 2015 were not compensated.

The Plate / Section Steel Business Unit essentially made investments purely for the purpose of maintaining facilities, which primarily entailed procuring replacement rollers as well as, among other things, the renewal of the plant control and warehouse management systems. In some instances, these investments also included measures aimed at improving processes and enhancing the quality.

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