Economic environment

The economic climate brightened worldwide during the second half of 2003. Many indicators suggest that the downturn has bottomed out and higher growth can now be expected.

In addition to the emerging economies of Asia, the USA in particular recorded an accelerated upturn. Driven by extensive tax cuts, private consumption expanded in particular, but business spending too has increased again recently.

The performance of the Western European economy was much more subdued. After a prolonged phase of stagnation, signs of a gradual economic recovery became visible in the second half of 2003. Exports increased despite the appreciation of the euro, whereas internal demand remained weak.

The economic situation in Germany was similar. With private consumption subdued and investment shrinking, higher exports produced a slight recovery in economic activity.

In the sectors of importance to ThyssenKrupp the picture was as follows:

• The international steel market was in robust shape in the final months of 2003. In 2003 as a whole, steel consumption in our core market of Western Europe was again slightly lower than a year earlier, but in the 4th quarter it was roughly equal to the corresponding prior-year period, according to initial estimates. Shipments and orders of Western European carbon steel producers improved significantly in the final calendar quarter according to data available so far. The highest growth - despite the strong euro - was in non-EU business. Reflecting dynamic steel demand on the world market as well as drastic increases in some cases in raw material and freight costs, international steel prices increased again significantly in the 4th quarter 2003 - after a brief moderate weakening in the middle of the year. As a result of further price rises already implemented, steel prices in Western Europe at the beginning of 2004 are back roughly to the level they were at a year ago. In Asia and North America the price increase has been significantly higher, mainly due to supply-side shortages and more dynamic demand in these markets. The comparatively moderate price increase in Western Europe is due also to the appreciation of the euro.
• The market for stainless steel flat products showed a positive volume trend in the final quarter of 2003. Orders and shipments of Western European producers increased from a year earlier. However, high demand and the strong euro also resulted in a further rise in imports from non-EU countries. At the same time, hefty price increases for chromium, nickel and unalloyed scrap put extreme pressure on margins. As a result of the price rise caused by higher raw material costs and the decline in prices in the summer months for demand reasons, base prices in the 4th quarter 2003 settled below the level of the comparable prior-year period.
• The international auto industry showed a mixed regional picture in the final quarter of 2003. In North America, production increased slightly, with the light truck segment further expanding its share of the market. Production was also higher in Brazil. The European auto market was largely stable. New car registrations in Western Europe in the 4th quarter 2003 were slightly lower than a year earlier. Thanks to higher exports, the German auto industry expanded its production despite slightly lower new registrations.
• Capital spending in important markets remained very subdued. In the USA, demand for machine tools remained at a low level. The German engineering industry was in stagnation for large parts of 2003, although the final months of the year brought a slight upward trend in orders.
• The situation in the German construction industry remained difficult. Both output and orders decreased. Commercial construction was particularly affected. Building activity in the countries of Central and Eastern Europe remained more favorable.