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SMS group, Germany, waiting for major orders

Jun 11, 2010

Dr. Heinrich Weiss

On June 9th, 2010, German Plantbuilder SMS informed of their 2009 business activities. Heinrich Weiss, chairman of the managing board of SMS GmbH, Düsseldorf, reviewed the recent and current situation in the worldwide steel industry and the willingness of companies to invest in modern plant technology. From his view he also draws conclusions as far as the future performance of SMS Group could be concerned.

In line with the general trend, SMS was markedly hit by the global market´s turbulences. Since fall 2008, hardly any major orders have materialized, due to the customer’s unwillingness to invest. As a result, the order intake nosedived by more than half compared to 2008 – down to some 2.3 billion Euro (SMS Siemag: -62 %, SMS Meer: -40 %). The current meager project situation is said to continue in 2010. The few large projects currently up for bids are subject to hot competition, putting pressure on prices.

Presently, the high order backlog from the boom time is still being processed allowing good utilization of capacity. However, in late 2010, capacities will be available. Announced measures to compensate for include the mobilisation of financial reserves as well as short-time work which will affect 500 of 9000 employees.

For 2010, SMS plans a countercyclical investment of 88 million Euro. for the modernisation of SMS Siemag´s Hilchenbach factory and the IT-facilities, as well as for SMS Meer´s machinery.

Steel plants in Europe, USA and Korea are about 20-30 years old and, compared with facilities in China and Russia, less competitive. A new market for modernisation, especially in the automation sector where product lifetime is even shorter, is coming up. This means that projects will become smaller and, at the same time, more sophisticated. In the developing countries, minimills for long products to be used in the local construction industry are required. Today´s trend goes for smaller plants, modernisation as well as service and maintenance. Heinrich Weiss, expects new orders rather from India, China, Middle- and South-America as well as from the Middle East. In Europe, USA and Russia the readiness to invest is rather low because of the moderate business activities in the steel industry. After the economic downturn, low-level stabilisation prevails, so far, no sustained increase could be observed. Investments in the steel industry are being postponed. The chairman feels doubtful about the day when recovery will change for the better and, accordingly, he does not expect any investment in large projects within the coming two or three years.

SMS Group does not anticipate an edged upwards order situation before the second half of the current year. For 2010, their chairman forcasts the order intake to amount to about 2.6 billion Euro. Anyway, to utilise its full capacity, SMS would need orders worth 3.0 billion Euro minimum, Weiss further reported.

The existing SMS organisation is challenged by countries like China and India calling for increased local commitment. The philosophy of SMS is to continue to be successful in the premium market segment, whereas simple equipment may be delivered by local plantbuilders. Accordingly, to strengthen the position in the Chinese market, SMS Siemag will erect several production locations in the P.R. China for machine assembly and maintenance work. SMS Meer will produce parts for the local Chinese market with about 250 employees. Anyway, Weiss severely criticised the strong protectionism by the Chinese, who decide that all products which can be built in China, may not be imported. He clearly states that the organisation existing in Germany will not be reduced, in admitting that the centre of competence, heart and brain of the company will remain in Germany.

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