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Subsequent events, opportunities and outlook

There were no reportable events.

At the beginning of 2010 the economic situation improved following the worst recession for decades, but there is still no sign of a self-sustaining recovery. For 2010 we expect global GDP to grow by 3.8%. After slipping 11.5% last year, world trade is expected to expand this year by 9.5%.

The economic prospects for the euro zone remain subdued, with GDP growth forecast at around 1%. There will be virtually no rise in consumer spending, and in light of underutilized capacities little impetus can be expected from business spending. As global trade picks up, exports will improve. The German economy is expected to grow by 1.5%. Given its strong export focus, the German economy will profit more than other countries from the recovery of the world economy.

The US economy is expected to expand by 2.9% in 2010. High debt levels in many households and the only slow recovery of the labor market will impact consumer spending.

The major emerging economies will step up the pace of expansion in 2010. China and India are expected to grow by 10.0% and 8.5% respectively, while the outlook for Brazil has also improved considerably.

Developments on the procurement markets pose a substantial risk to the still fragile global economic upturn. Prices for iron ore and coking coal are expected to rise sharply this year. Traditionally, prices for iron ore have been negotiated on the basis of annual contracts. As iron ore prices on the spot markets – which are of little importance in terms of quantity – have recently been significantly higher than the annual contract prices due to demand from China, the three ore producers that dominate the market intend to push through price rises of in part more than 100% and at the same time switch contracts with the steel industry from an annual to a quarterly basis. The first contracts have already been concluded for the 2nd calendar quarter of 2010. The enormous price increases will place significant burdens on the steel industry and its customers, for example in the automotive and engineering sectors, and may result in considerable price fluctuations. In addition, the price increases may lead to an increase in financing requirements at all stages of production which will further impede the ability of banks to supply liquidity to the real economy.

We anticipate the following developments on the sales markets of importance for ThyssenKrupp:

  • Expectations on the global steel market are cautiously optimistic. According to the spring forecast of the World Steel Association, global steel demand will increase by 11% in 2010; that corresponds to a crude steel output of around 1.4 billion metric tons. In Europe and the NAFTA region demand will be higher this year than in 2009, mainly due to restocking, but production and demand levels will still fall well short of previous years. There are no signs of a significant increase in real consumption, especially in Europe. Not least due to further capacity expansions worldwide, there is a continued risk on our core European market of increasing imports from third countries, in particular China. The inventory overhangs accumulated in China in 2009 and a more restrictive economic policy by the Chinese government could significantly dampen demand growth in the country this year. In the other emerging countries, steel consumption is expected to rise again slightly. The expected drastic increase in prices for iron ore and coking coal in the further course of the year will result in significantly higher steel prices.
  • Demand for stainless flat products will recover in all regions this year, with worldwide growth of 10% forecast for 2010. The markets of Western Europe and North America are expected to expand by 10% and 18% respectively. In China the pace of growth will probably slow to 8%, while an increase of 13% is forecast for the rest of Asia.
  • The global auto market will recover in 2010. In the current calendar year, production is forecast to expand by 10% to 65 million cars and light trucks. North America and Japan, which suffered the severest slumps in 2009, will grow more quickly. In China, the pace of expansion will slow as government stimulus programs are scaled back. German car manufacturers will benefit from rising export demand in 2010, which will offset the fall in domestic demand following the end of the rebate program.
  • Following the sharp declines of the previous year, production expectations for the machinery sector remain subdued in the industrialized countries. Low capacity utilization levels in industry are impacting demand for new equipment. For Germany and the USA, a moderate 3% rise in output is expected; growth will remain more dynamic in China. The German plant engineering industry will profit from rising raw material prices, which will make many of the planned projects postponed due to the recession feasible again.
  • The construction sector will remain weak in most industrialized countries in 2010. Construction output will decrease further in the USA in particular, but also in Western Europe. In Germany, there will be further growth in public-sector building in 2010 thanks to the government stimulus packages. However, this increase will not be enough to offset the decline in commercial construction. The Chinese and Indian construction sectors will remain strong.

Outlook

We are cautiously optimistic that the current economic recovery will prove sustainable. However, it is not yet possible to reliably assess the impact of the massive price increases for important raw materials.

We continue to anticipate that sales will stabilize in fiscal 2009/2010. Earnings are expected to improve significantly and return to profit, thanks in large part to the cost-cutting programs we have introduced. Adjusted earnings before interest and taxes (EBIT adjusted for nonrecurring items) will probably be in the high three-digit million euro range. Adjusted earnings before taxes (EBT adjusted for nonrecurring items) are expected to be in the low three-digit million euro range. Adjusted EBT will be significantly impacted by startup losses in the Steel Americas business area in the mid three-digit million euro range.

Our expectations for the individual business areas are as follows:

  • Steel Europe – Improvement in volumes and capacity utilization, average selling prices below prior-year level
  • Steel Americas – Negative EBT contribution in the mid three-digit million euro range due to startup losses for the steelmaking and processing facilities in Brazil and the USA
  • Stainless Global – Stabilization of volumes with improved base prices
  • Materials Services – Stabilization of volumes and selling prices
  • Elevator Technology – Continued high earnings contributions thanks to strong order backlog and stable modernization and maintenance business
  • Plant Technology – Good revenue and earnings visibility in project business due to order backlog with good earnings quality
  • Components Technology – Continued difficult environment for construction machinery components; improvement in automotive components and continued positive earnings contribution from slewing bearings for the wind energy sector
  • Marine Systems – Improved earnings quality through initiated consolidation of shipyard sites

In 2010/2011 we expect an improvement in the overall economic environment and further positive effects from our cost-cutting programs. This will have a corresponding influence on sales and earnings.