ELG held its ground comparatively well in a very difficult market environment. Nevertheless, revenue and operating profit dropped sharply compared to the previous year. This is attributable first and foremost to historically low commodity prices as well as a lower output tonnage for stainless steel scrap. The superalloys business performance was heterogeneous: while the toll processing business had a stabilising effect, the trade business came under pressure.


Difficult market environment for stainless steel
Global stainless steel production in the 2015 financial year ranged below the previous year’s level for the first time since 2009. A substantial cause for the declining quantity was the weaker overall economic demand in China. Quantities also declined in ELG’s two most important sales markets – Europe and the US. In addition to the weaker domestic demand for stainless steel products, production in the US suffered from increased imports from China where half of the world’s stainless steel is produced. In Europe, stainless steel mills saw weaker demand from their customers. Additionally, there was a massive decline in the price of nickel, the most valuable element in stainless steel, due to the worldwide oversupply of primary nickel as well as diminished economic expectations.

Global trading in stainless steel scrap was also impacted by the continually declining price of nickel. On the one hand, this led to a noticeably lower availability of scrap on the procurement market than in the previous year because many suppliers held back scrap in view of the low price level and in expectation of increasing prices. Furthermore, the competitiveness of primary nickel compared to stainless steel scrap grew due to prices. Overall, this situation had a negative impact on ELG’s stainless steel scrap output tonnage, which fell by 12 per cent year on year.

Historically low commodity prices
The price of nickel declined continually since the beginning of the year and closed the financial year at USD 8,700 per tonne – the lowest level since 2003. It averaged USD 11,800 per tonne, 30 per cent below the previous year’s price level. In addition, the prices of iron and chrome ranged significantly below the previous year’s level in 2015. The price of iron dropped by 40 per cent during the course of the financial year, the price of chrome by 15 per cent. In addition to the decline in quantity, the stainless steel scrap business therefore also had to cope with a substantial deterioration of commodity prices of the most important stainless steel components.

Toll processing stabilises superalloys business
In financial year 2015, the superalloys tonnage in the ELG Utica Alloys business segment increased by 6 per cent year on year. In this regard, ELG Utica Alloys benefited from business development in the toll processing business, first and foremost by entering into new contracts with the aviation industry. By contrast, the trade business was well below the previous year’s level due to the declining demand in the energy generation and petrochemicals industries.

The shifting of volume to the toll processing business had a stabilising effect on the business because ELG Utica Alloys generates these revenues largely independently of commodity prices. By contrast, development of prices of commodities significant to the trade business varied: while the nickel price and other raw material prices declined, the relevant titanium price increased significantly compared to the previous year.

Sharp drop in output tonnage, revenue and operating profit
ELG’s overall output tonnage dropped sharply compared to the previous year. In conjunction with the considerably lower price of nickel and other relevant commodities, this led to a 17 per cent decline in revenue to EUR 1,827 million. ELG’s operating profit also dropped and fell into the negative to EUR -6 million in the 2015 financial year, which in the previous year amounted to EUR 59 million. Lower revenue and the lower margin in the stainless steel scrap business negatively impacted the operating profit. The decline in margins is attributable to the fierce competition on the sales side, the high level of purchase prices on the procurement side, and the losses in value of inventories through continually declining commodity prices. The losses in value of iron, chrome and molybdenum were especially grave because no hedging transactions can be concluded for these alloy components. Additionally, the operating profit was reduced by a provision recognised for an earlier business acquisition, which was increased due to stricter environmental regulations. ELG held its ground comparatively well despite the extremely difficult market environment.

Strict cost management and capacity adjustments
In the stainless steel scrap market segment, ELG countered the difficult environment with strict cost management. As a result of the closure of German stainless steel plants as well as the commissioning of a stainless steel plant in the US, ELG has also adjusted its location network to the changed materials flows.

The increased demand for superalloy scrap resulted in a high capacity utilisation in ELG Utica Alloys’ superalloys business. The segment therefore expanded its recycling capacities and launched new operating locations.

Further expansion of Carbon Fibre business segment
The Carbon Fibre business segment acquired in 2011 developed positively year on year. Its activities focused on the expansion of the product development and sales functions.