Europe
Despite burgeoning optimism, the economy in Europe in 2013 was ultimately characterized by stagnation of the gross national product. In a year-to-year comparison, investment activity was down as was industrial production (–0.5%); it was not until the early part of 2014 that a slightly upward trend became noticeable in this sector.
The key to leaving the recession was once again exports. Here, it was the most important sector for voestalpine, the automobile industry—primarily its premium segment—that continued to perform strongly throughout the entire business year 2013/14. With the “volume segment” also returning to a trajectory of growth during the second half of the year, the automobile industry began to hint at its former strength.
Although the early indicators for EU consumer confidence made it reasonable to expect growth in the past business year, a truly significant revival of demand did not occur. The European construction industry still did not demonstrate any noticeable trend toward recovery in 2013/14.
If one observes the development in the European economic region during the business year 2013/14 in detail, it becomes evident that the extreme differences in economic performance between Central Europe and Europe’s periphery have begun to dissipate. The main factor is the gradual beginning of a recovery in the peripheral nations—primarily in Southern Europe—where reforms, many of which have been painful, are slowly being translated into improved competitiveness and are showing a positive effect.
North America
The economic mood in North America had already begun to lighten in the early part of the business year 2013/14, however, it took some months before improving sentiment was translated into increased demand. In the fall of 2013, however, there was a “government shutdown” in the USA due to massive political conflicts associated with the financing of the budget, and this again created uncertainty and volatility in the markets. However, once there was political agreement about the federal budget for the next two years, doubts about further negative implications were dispelled relatively quickly. Subsequently, the upward trend stabilized so that the US Federal Reserve announced a possible tapering process (reduction of purchases by the Fed of Treasury bonds and mortgage-backed securities, which had been undertaken as an emergency measure during the financial crisis), a step that emphasizes the newly won stability of the economic uptrend in North America. The positive development was somewhat subdued by the extremely severe winter weather so that GDP fell in the first calendar quarter of 2014 (= fourth quarter of the business year 2013/14 of voestalpine AG) to 2.6%. All of the early macro indicators show positive tendencies for the remainder of the year. Among other factors, US consumer confidence rose in March 2014 to a new six-year high.
For voestalpine, this gratifying development in the USA means positive impulses for several of the Group’s business segments that are represented in North America, for example, the Rail Technology business segment and particularly, the Turnout Systems business segment. But also the energy sector, and along with it the Seamless Tube and Welding Consumables business segments, show solid demand in North America.
While the US automobile market was thus far only of indirect importance for the voestalpine Group via exports by European automobile manufacturers, the opening of a plant in Cartersville, Georgia, in the spring of 2014 has now also established a direct link to the US automobile market, albeit for the time being primarily to German car manufacturers and their North American plants.
Despite the difficulties experienced by Boeing’s Dreamliner project, the US aviation industry continued its excellent performance in recent years in the past business year as well.
Demand for tool steel in the United States continued to be stable at a satisfactory level, while the markets in Canada did not demonstrate any appreciable momentum.
Brazil/South America
In the past business year, Brazil did not return to a phase of above average growth, which has typically characterized emerging markets, even though its GDP growth in 2013 went up to just over 2% from the very disappointing 0.9% in the previous year. The industry showed only marginal growth in 2013 of 1.2%, while at 2%, the service sector grew slightly more robustly. The strongest performance came from the agricultural machinery sector with a plus of more than 8%, a development that benefited the Metal Forming Division’s special sections business segment, although other significant sales markets remained weak. In the segment of special materials for the oil and natural gas industries and in the segment of special steels for the consumer goods industry, demand over the entire last business year remained modest.
Structural deficits, triggered by weak spots in infrastructure, rising unit costs, and proliferating bureaucracy are having negative effects on the country’s productivity and thus on its international competitiveness. Even a 16% devaluation of the Brazilian real vis-à-vis the US dollar in 2013 was not able to ameliorate the situation. Therefore, a return to being an export nation for this largest economy on the South American continent is not in sight in the medium term. The sole source of any positive economic activity is the domestic market; voestalpine is in an excellent position to take advantage of this factor.
China
The country’s goal was to defend its path of economic growth and achieve GDP growth of 7.7% in 2013. The fact that this figure, which is still quite high when compared to European standards, is nevertheless being viewed critically, is due to the quarter-to-quarter performance. Triggered by a statement by the new government that brakes would be applied to “over-invested” or overheated sectors, such as the construction industry, the first half of the business year 2013/14 saw a perceptible cooling of the country’s economic development. Once the political reins were somewhat loosened in the summer of 2013 without much fuss, there was a positive turnaround. Toward the end of the business year, approval of a number of major infrastructure projects resulted in additional momentum. These include investments in railway infrastructure both in urban areas and in longer cross-country routes, which especially benefited—and continue to benefit—the Turnout Systems business segment in the Metal Engineering Division. Private consumption as well, especially demand for cars, rose sharply in the country during the last business year. This is a development that affects both European exports and, increasingly, vehicles produced in China by European manufacturers. Against this backdrop, the Metal Forming Division is currently building two new plants for automobile components and special sections in Qinhuangdao and Suzhou.
A major factor in the voestalpine Group’s overall very positive performance in China has been a rapidly growing middle class, whose consumer behavior has boosted demand for cars as well as the special steel products produced by the Special Steel Division. In a global comparison, the Asian region has been the most successful market for this segment of the voestalpine Group in the past business year. The expansion of activities resulting from the acquisition of Rieckermann Steeltech Ltd. (Shanghai) and P.M. Technology Ltd. (Shenzhen) as well as the expansion of service offerings through greenfield investments reflect the positive assessment of the long-term economic development of the Chinese economy. As, however, a number of fundamental problems have remained unsolved, such as the speculative real estate bubble, which has long been a topic of discussion, including the associated uncertainties in the Chinese banking and financial sector, and, last but not least, the disastrous pollution of the environment, one should realistically not assume an uninterrupted upwards trend in the future, despite the country’s enormous potential.
