Oil price hurts Thyssenkrupp, steel outlook improves

By Georgina Prodhan

FRANKFURT (Reuters) - German industrial group Thyssenkrupp reported an unexpectedly sharp drop in demand from customers hit by weak oil and raw materials prices, sending its revenues down 12 percent in the quarter to the end of June and knocking its shares.

The steel-to-elevators group brought forward cost savings to bolster earnings and said the outlook was improving, especially for its steel-related businesses, where higher spot-market prices should start to feed through to its results this quarter.

But Chief Financial Officer Guido Kerkhoff said it was too early to speak of a sustainable upturn in European steel prices, with many factors at work including anti-dumping regulations and supply and demand in other parts of the world.

 

"I wouldn't say an upcycle is starting," he told reporters on a conference call on Thursday.

Kerkhoff declined to comment on the progress of steel merger talks with India's Tata , aimed at supporting prices by allowing a merged entity to shut down excess capacity.

The outcome would not be affected by Britain's vote to leave the European Union although it would delay the process, he added.

Tata had planned to sell its Port Talbot blast furnace plant before June's Brexit vote but is now talking about a merger of its European steel operations, including the Welsh plant, with potential strategic partners.

Thyssenkrupp's steel divisions beat forecasts for the third quarter, helped by improvements in materials prices which it said were beginning to show and would have a favourable impact on future earnings.

Thyssenkrupp stuck to its forecast for adjusted EBIT of at least 1.4 billion euros for the year to the end of September, having made 1 billion euros in the first nine months.

Smaller German steelmaker Salzgitter also said this week that spot-market price improvements would take time to feed through into its contracts, which were often agreed months in advance.

OIL PRICE DRAG

The initial improvements in Thyssenkrupp's materials businesses -- which account for were 60 percent of group sales -- could not compensate for a 22 percent fall in sales and a decline of three-fifths in orders at its plant-engineering division, Industrial Solutions.

"In the Industrial Solutions business area, where there remains a high volume of bids in a promising status, customer caution on account of low oil and raw material prices continued to weigh on business," it said in a statement.

Thyssenkrupp shares fell almost 4 percent in early trading and were the biggest German blue-chip decliners <.GDAXI> but by 0838 GMT had partially recovered to trade down 1.4 percent at 20.82 euros. The shares hit a four-month high earlier this week.

Thyssenkrupp said it had saved 700 million euros ($782 million) in costs in the first nine months of its fiscal year, more than planned, which helped limit the fall in third-quarter adjusted earnings before interest and tax (EBIT) to 18 percent.

At 441 million euros, quarterly group EBIT beat the average forecast of 415 million euros in a Reuters poll. Sales of 9.86 billion euros clearly missed even the lowest of the estimates in the poll, which averaged 10.5 billion euros.

"We are continuing to concentrate on the things we can influence ourselves. And that is paying off," said Chief Executive Heinrich Hiesinger.

($1 = 0.8957 euros)

(Reporting by Georgina Prodhan; Editing by Joseph Nasr)