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Capital market-relevant press releases, 2004-10-05, 02:00 AM

Successful fiscal year for ThyssenKrupp Steel

Fiscal year 2003/2004, which ended for ThyssenKrupp Steel AG on September 30, was the most unusual in the centuries-old history of the steel industry. For the first time ever, more than a billion metric tons of steel will be produced in 2004. "And yet there is still not enough steel to meet all customer demand," Prof. Dr. Ulrich Middelmann, Chief Executive Officer of ThyssenKrupp Steel AG, told journalists at the Annual Conference of the International Iron and Steel Institute (IISI) in Istanbul.

This boom, which is forecast to continue for the foreseeable future, is being driven by the massive growth in China. ThyssenKrupp Steel intends to steadily increase its presence on this promising market and build on the initial lead it has established in stainless and carbon steel. Chinese mills will produce more than 260 million metric tons of steel this year, over 20% more than in 2003. In 1990, steel production was only 66 million tons, rising to around 100 million tons by the mid-90s. However, the Chinese will also consume 300 million tons of steel this year, so will have to import 40 million tons, compared with 35 million a year ago. Even if the growth rate drops to below 10% in the medium term and steel capacities are increased rapidly, China will likely remain a net importer for some time. For the rest of the steel world outside China, moderate growth of 2% to 780 million metric tons is forecast for 2004.

The record imports to China stabilized the European market. In the enlarged 25-member EU, where production had remained steady at just over 180 million metric tons a year since the early 90s, an increase from 184 million to 194 million tons is expected in 2004. Production in Germany is expected to increase by 4% to 46.5 million tons. One advantage of China`s steel hunger was that imports to Europe did not exceed exports and price levels were not adversely affected.

The disadvantage hit the steel industry harder, as raw material costs increased at an unprecedented rate. The steel price increases in the current year failed to compensate fully for the cost explosion that affected ore, coke, coking coal, alloying elements, scrap, energy and freight rates. The fact that ThyssenKrupp Steel will nevertheless report record earnings for 2003/2004, coming close to the goal of 800 million euros or a 12% return on capital employed (ROCE), is due to the healthy volume situation and to various internal efficiency programs. Prof. Dr. Middelmann: "Cost optimization and efficiency enhancement at all levels is an ongoing necessity. It`s something we`ve been doing extremely successfully in recent years, enabling us to improve our performance substantially". Another reason for ThyssenKrupp Steel`s optimism going into the new fiscal year is the fact that the price increases, previously limited to spot volumes, will have a positive impact on many long-term contracts in 2004/2005.

"However, we will have to keep on driving the optimization process in order to achieve appropriate earnings to create value for the ThyssenKrupp Group," said Prof. Dr. Middelmann. The measures include the rapid conclusion of the divestitures planned in the Special Materials area, so the focus in the coming fiscal year will finally be on the Carbon Steel und Stainless Steel business units, which both make their contribution to profits. Best owners for the companies Berkenhoff and Krupp Edelstahlprofile (KEP) have been found in the financial investor Granville Baird for Berkenhoff and the industrial investor Schmolz + Bickenbach. In the case of Edelstahl Witten-Krefeld, talks are being held with potential buyers which could result in a solution by the spring.

Cost optimization and efficiency enhancement alone cannot be the basis for a long-term strategy, continued Prof. Dr. Middelmann. Following the phase of post-merger integration and synergy attainment, the outlines of a new strategy are now being developed. Among other things this is necessary because ThyssenKrupp Steel has dropped a few places in the world top ten after recent mergers. Middelmann believes the steel industry will change by 2010 and be dominated by eight companies: "ThyssenKrupp Steel wants to be in the leading group, creating long-term value for the ThyssenKrupp Group." The steel industry is following the example set by the supplier and customer sectors, which have achieved a much higher degree of consolidation.

With its high production costs, Germany cannot compete internationally in mass-produced steel. The CIS region, South America and Asia have totally different cost structures. That is why ThyssenKrupp Steel is concentrating on high value added products with excellent growth prospects. This so-called downstream business already accounts for 82% of sales in the Carbon Steel business unit and over 90% in Stainless Steel. Innovations and high-quality services for high-tech steels will allow the company to differentiate itself from the competition. Innovative products need to be provided across the world at consistently high quality levels. This is why ThyssenKrupp Steel is focusing not only on its home market of Europe but also on the growth regions of Asia, particularly China, and NAFTA, the world`s largest auto market. The company is also keeping a close eye on developments in Eastern Europe.

A central element of the strategy will therefore be to expand the company`s technology leadership in materials, products and processing technologies, while defending its margin leadership. ThyssenKrupp Steel carries out intensive research and development efforts, increasingly in close cooperation with customers. "We offer more than just materials expertise; like with the NewSteelBody we developed, we operate as system partners integrating the expertise of different disciplines to provide holistic solutions," said Prof. Dr. Middelmann.


ThyssenKrupp Steel
Erwin Schneider
Tel.: +49 203 52 - 2 56 90
Fax: +49 203 52 - 2 57 07

Dietmar Stamm
Tel.: +49 203 52 - 2 62 67
Fax: +49 203 52 - 2 57 07

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