TK Stainless

innovaTive maTerials
New applications, innovative products
and process technologies are
being developed to optimize
our market position
Risk management
ThyssenKrupp sTainless aG Business performance
In addition to the usual cyclical risks, the Stainless segment faces risks associated with the way the
markets respond to existing or anticipated overcapacities at stainless producers in Asia. The supply
and demand situation in China in particular represents a risk.
Numerous measures are in place to counter these risks. We have extended our value chain towards
the higher-margin end-customer business, further intensified customer relationships, expanded
our custom services, and improved our quality and delivery performance. We are also countering
increasing competitive pressure by developing new applications for stainless steels and nickel alloys,
by developing innovative products made from these materials, and by using modern, cost-saving
process technologies.
In the construction of the stainless steelmaking and processing plant in Alabama, USA, the costs
are being strictly controlled to minimize the risk of further budget overruns. The implementation of this
project will also help increase our market penetration in the USA.
The risks associated with the availability and prices of raw materials, particularly nickel, chromium
and alloyed scrap, are minimized by corresponding contracts and hedging mechanisms. Stainless
is preparing for the risk of substitution of stainless flat-rolled products in response to high alloying
element prices by developing alternative material concepts. In addition, the continuous development
and introduction of technical and organizational measures ensures that potential sources of risks in the
production process are eliminated or reduced.
In view of the risk of fire and natural phenomena such as storms, hail and flooding, the segment
significantly expanded its risk management activities in the area of property insurance. In cooperation
with the insurance companies, joint, binding risk provision standards were drawn up, compliance with
which is reviewed in regular audits. We developed measures to minimize the risk of fire in cooperation
with the insurance companies and external experts. The implementation of these measures is under
way.
On November 20, 2007, the EU Commission ruled that a law adopted by the Republic of Italy in 2005
granting ThyssenKrupp Acciai Speciali Terni among other companies certain benefits in the purchase
of electricity was inadmissible state aid. Together with the Republic of Italy we filed a complaint against
this decision with the court of first instance. If the Commission’s ruling is upheld, this could have a
material effect on the consolidated financial statements of ThyssenKrupp.
Outlook
In the market for stainless flat products, inventories at distributors and service centers have been
decreasing for some months. However, our customers’ inventories of finished products have been
increasing due to the weaker level of consumption. As prices for our raw materials fall, i.e. scrap and
the main alloying metals such as chromium, nickel and molybdenum, and the fear of a recession grows
as a result of the global financial crisis, the level of new orders is significantly lower than expected. The
weak order intake will result in production cutbacks at most of our operations. In addition, falling base
prices due to the weak market will weigh heavily on earnings.
The world economy will be in a phase of recession in 2009. The financial crisis will have a negative
effect on consumption and capital spending. How far the rescue programs introduced by the
governments of many countries will stimulate the economy cannot be judged at the present time.
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