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Trump’s decision regarding Section 232 — a max. of 3% of voestalpine Group revenue in the USA impacted

2018-03-09 | 

The US administration last night announced its decision regarding steel imports pursuant to Section 232, and confirmed the version already suggested by President Trump last Thursday which includes a general punitive tariff of 25 percent. Currently only the NAFTA partners Canada and Mexico are exempt, although other exemptions may follow.

We note the American President’s now firm decision. It must be assumed that there will be an immediate economic policy response at EU level and from other economic regions. Due to the complexity of global economic structures, it is not immediately possible to assess the potential consequences for the global markets and free trade. However, economic impacts on all those involved – although to differing extents – is unavoidable. In this respect, the EU will have to consider first and foremost the measures and instruments which are necessary to prevent the unwarranted redirection of global trade flows to Europe.

Wolfgang Eder, Chairman of the voestalpine Management Board. Wolfgang Eder, Chairman of the voestalpine Management Board.

voestalpine already began thoroughly exploring the potential consequences of such measures on its business in the USA and its relations with the USA last year. As a whole series of issues in the presidential proclamation still require further specification, and possibly as yet undefined exemption clauses could follow, realistically this clarification process will take several weeks. Only once this is completed can the corresponding action be finally defined. A year ago voestalpine established a “Taskforce USA” to monitor developments in the United States. The team consists of eleven employees from the USA and Austria who are being supported by US law firms, US partner companies, and local policy makers.

Overview of voestalpine in the USA

voestalpine activities in the USA contribute significantly to regional value creation, as well as creating and securing jobs at a total of 49 locations. The Group has specifically invested USD 1.4 billion in the production of high-tech products in the USA in recent years, resulting in around 3,000 highly skilled local jobs which make a sustained and positive impact. voestalpine generates around two thirds of its US revenue of around EUR 1.2 billion (2017) as a local manufacturer in the USA, and therefore the majority of its operations will not be directly affected by the planned measures. The extent to which the remaining revenue will be impacted by the import restrictions is currently undergoing detailed examination. But the fact is that, based on these figures, a maximum of around 3 percent of current voestalpine Group revenue could be impacted by the US tariffs, so that, even in extreme circumstances, the economic risk remains very manageable.

Added to this, having long since shifted its focus to technology, the voestalpine Group is no longer a “classic” steel manufacturer. In addition, in the USA it is exclusively a premium supplier of high-quality products which are manufactured and processed at 23 production sites for highly sophisticated industrial sectors. Consequently, voestalpine has little in common with the traditional steel manufacturing and trading business.

Punitive tariffs for pre-materials in steel

The 3 percent of Group revenue potentially impacted by the punitive tariff of 25% is primarily high-tech steel which is largely, or completely, unavailable in the USA and used to produce sophisticated semi-finished and finished products. This includes high-quality steel strip imported from Austria which is processed into ultra-high-strength lightweight body parts and automotive components in the USA. With its phs technology, the Group company responsible, voestalpine Automotive Components in Cartersville, Georgia, is one of the leading manufacturers of ultra-high-strength lightweight components in the NAFTA region, supplying renowned automotive manufacturers in the region, particularly those from Europe. The pre-material for these highly specialized products is otherwise not available in the USA in this quality.

Advanced seamless tubes, especially for oil & gas exploration, are also semi-finished in Austria (Kindberg) according to the same organizational system, and processed into special products in the USA. Production involves both joint venture partners as well as customers in the USA. Other materials and special parts for the oil & gas industry, as well as ultra-high-strength aircraft components produced in the High Performance Metals division, also have their origin in voestalpine’s European and Brazilian plants. Moreover, as the global market leader for tool steel, the division is an important partner to the US tool industry, making it a key factor in the industry’s competitiveness.

Two thirds of voestalpine US production unaffected by punitive tariffs

Production sites located in the US are not directly impacted by these punitive tariffs. The most well-known voestalpine example here is the site in Corpus Christi, Texas. Here the Group operates the world’s largest and most advanced direct reduction plant which has been producing high-quality pre-materials (sponge iron) used in steel manufacturing since 2016. The plant supplies customers around the world—the majority naturally also in the NAFTA region—as well as the Austrian voestalpine sites in Linz and Donawitz. Furthermore, with the 7 sites belonging to the Group’s US subsidiary voestalpine Nortrak, voestalpine is the leading provider of railway turnouts in North America, and equally unaffected by the punitive tariffs.

“Despite the limited impact of the punitive tariffs on our Group, the current actions of the US administration have led us to critically examine whether all our plans for further investments in North America are economically and politically sensible,” says voestalpine CEO Wolfgang Eder.

The voestalpine Group

In its business segments, voestalpine is a globally leading technology and capital goods group with a unique combination of materials and processing expertise. This global Group comprises about 500 Group companies and locations in more than 50 countries on all five continents. It has been listed on the Vienna Stock Exchange since 1995. With its top-quality products and system solutions using steel and other metals, the voestalpine Group is one of the leading partners of the automotive and consumer goods industries in Europe as well as the aerospace and oil & natural gas industries worldwide. voestalpine is also the world market leader in turnout technology, special rails, tool steel, and special sections. In the business year 2016/17, the Group generated revenue of EUR 11.3 billion, with an operating result (EBITDA) of EUR 1.54 billion; it had about 50,000 employees worldwide.