Trading Division

1) Incl. sales to other corporate divisions

Against the background of the global economic crisis, market conditions for international steel trading were challenging throughout the first nine months of 2009. The demand for steel from European and North American customers slowed notably as a consequence of sales problems experienced by steel processing industrial sectors. In the Middle East, the weak oil price caused government and private income to fall sharply which had a direct and negative impact on the construction and investment activities of this region. Only at the end of the summer was a hesitant emergence from the economic trough discernible in the aforementioned markets. By contrast, Chinese steel producers saw demand recover as early as mid-year. Due, however, to meanwhile replenished inventories and the resulting good availability of materials, the Chinese market has meanwhile reported that steel prices are falling again. Only the Indian and African markets remained relatively robust over the whole reporting period.

In the first nine months of the financial year 2009, the Trading Division recorded a significant downturn in its business activities as a consequence of the unfavorable market conditions. A sharp reduction in shipments, in conjunction with a slump in earnings, led to a notable decline in segment and external sales. The reporting period closed with a loss before tax owing to the high cost of the goods sold.

The basic conditions since the start of the year have had a very detrimental effect on the activities of Salzgitter Mannesmann Handel Group (SMHD Group). Along with the low level of capacity utilization of many customers, the fact that many traders and consumers reduced their inventories, coupled with price declines, exacerbated the situation. Against this backdrop, the SMHD Group recorded a negative result as per September 2009. The low level of earnings throughout the whole of the first nine months, combined with weak shipments, caused sales in almost all segments to drop sharply.

Almost all companies in the stockholding steel trading were affected by the decline in shipment volumes. All customer sectors suffered from slumps induced by the recession, which naturally had an effect on the development of demand. Moreover, inventories purchased at a higher price level placed notable pressure on gross earnings. Shipments and sales were in decline in comparison to the figures of the first three quarters of 2008, and the pre-tax result was clearly in the red. The Dutch companies were a gratifying highlight which, as from the summer, reported positive monthly contribution to profits on the back of an above average inventory turnover. At the start of the year, the Czech company Salzgitter Mannesmann Stahlhandel s.r.o., Prague (SMCZ), was incorporated into the group consolidated companies.

During the period under review, the SMHD Group’s international trading also had to struggle with a sharp downturn in new orders and correspondingly low shipment and sales figures. The comfortable specific gross earnings of international trading activities were unable to fully compensate for the effects of the lower level of shipments, and consequently the pre-tax result has dropped as against the previous year’s figure, but is nonetheless still positive. Only the negative contribution to profit by the American subsidiary, which was particularly hard hit by the recession and a virtual standstill of the US steel market, dampened the result of the trading group.

Following the massive slumps in prices and volumes in the first half-year, the plate market failed to show any significant signs of recovery in the third quarter of 2009 as well. Although earnings stabilized at a low level, customers only bought material needed for production without building up their own inventories. The shipments of Universal Eisen und Stahl GmbH (UES) fell by more than a third in the reporting period as against the previous year’s figure. This affected the inventory and third–party business as well as the pre-processing business. Combined with the impact of weak revenues, the company sustained a significant downturn in sales. Due to the high cost of goods held in stock, the result before tax slipped way into the minus.

Tumbling demand, combined with a concurrent erosion of selling prices, put severe brakes on the business activities of the Steel Service Center, Hövelmann & Lueg GmbH (HLG). The first signs of a hesitant recovery only emerged in the third quarter. Consequently, segment sales halved and shipment volumes dropped notably. The accumulation of these effects, together with the very unsatisfactory gross earnings, led to a pre-tax result that was clearly in the minus.