Thyssenkrupp (NASDAQ: TSO) shares have already fallen more than 47% from their November 2021 high. The broad market in the form of the DAX index was able to hold up much better and only lost around 20% (29 / 06/2022).
Why is it falling again, even though the newspapers are already listed well below book value?
1. The economy is weakening
Central banks in the US and Europe are raising interest rates due to high inflation. But this also leads to a slowdown in economic growth or even a recession. Additionally, many analysts are lowering their valuation, which leads to increased sales.
With its steel business, Thyssenkrupp is particularly dependent on economic developments. Stocks usually rise most strongly during a recovery, only to collapse disproportionately during a crisis.
2. Consequences of the war and the weight of the Thyssenkrupp pandemic
At the start of the pandemic, there were many economic closures. In China they were still ongoing even in the last few weeks. But the economy isn’t made for a stop-and-go pace, as all processes are tightly coordinated.
This led to an increase in logistics, raw material and energy costs, which also weighed on Thyssenkrupp and, above all, on its customers.
Added to this are the consequences of the war in Ukraine. Energy costs have again increased significantly and are likely to remain at high levels for years to come. Alternative sources of oil and gas are generally significantly more expensive. As a result, Germany as a business location is becoming less attractive.
3. Inflation leads to higher wages
Due to the rise in prices, many unions are demanding corresponding wage increases. However, if a company cannot easily pass costs on to its customers, profits go down. Thyssenkrupp is already in stiff international price competition.
More recently, IG Metall agreed on a 6.5% wage increase for the steel sector from 1 August 2022. This means that Thyssenkrupp will also face higher costs.
The group has also recently benefited from the increase in steel prices.
4. The European Court of Justice decides against Thyssenkrupp
To better position its steel business, Thyssenkrupp wanted it in 2019 Tata Steel Europe (WKN: A0X9H1) merge. But the European Union feared excessive pricing power.
The European Court of Justice has therefore now rejected a Thyssenkrupp case. Instead of protecting European steelmakers, the policies of recent years have done just the opposite. International competition benefits from this.
5. Converting production increases costs
Many companies have to adapt to stricter CO2 emissions regulations. The biggest costs are incurred in the manufacturing industry. Furthermore, the natural gas needed for this has become much more expensive and the production of green hydrogen is only just beginning.
The Thyssenkrupp Stock Article: 5 Reasons Why It’s Collapsing Again! first appeared in The Motley Fool Germany.
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Christof Welzel does not own any of the shares mentioned. The Motley Fool does not own any of the titles mentioned.
Motley Fool Deutschland 2022