British businesses trading in the steel and metals industry should be prepared for challenging times ahead as the sector continues to face difficulties, reports trade credit insurer Atradius.
The recent Atradius Market Monitor report on the performance and outlook of steel and metals warns that the sector is challenged by overcapacity, fierce competition, exchange rate volatility, high energy costs, ongoing austerity measures and increased uncertainty following the Brexit vote. Atradius’ analysis has resulted in the sector rated with a ‘poor’ outlook and reports that the average payment duration is 60 days.
The Market Monitor details that, alongside Europe, British steel producers face competition from increased levels of steel shipments originating from Russia and China, while steel prices remain depressed largely as a result of low commodity prices, particularly iron ore. The more adverse market conditions have continued to impair revenues, margins, profits and cash flow for many businesses.
Consequently, in a bid to mitigate liquidity risks, cost-cutting programmes and vigilant cost management strategies have been implemented, inventories are being unwound and non-core assets disposed of. However, Atradius reports that while the industry has responded to overcapacity with cost containment measures, the remedy could be limited in the longer term. Maintaining margins through cost reduction and focusing on high-end products should not be seen as an ultimate solution to structural problems.
Positively, the Market Monitor also reports that many businesses have already invested in new technologies, such as laser cutting and detailed integrity scanners which will help them to gain competitive advantages in the future.
Richard Reynolds, Head of Regional Brokered Sales at Atradius, said: “Despite the current challenges, payment delays are not expected to increase for the time being and insolvencies are not expected to show a major increase. However, caution is advised due to the still fragile nature of the sector, which can lead to unexpected failures. We would therefore advise businesses trading with the sector to adopt a cautious outlook, taking every step to avoid exposure and ensure prompt payment. Red flags may include changes in payment behaviour and customers seeking new terms or to extend credit. Atradius has a comprehensive understanding of the sector and the prevailing issues which we continue to monitor so that we can support our customers to manage the risks.”
To support businesses in their new export journey, Atradius offers a suite of free publications ranging from country reports and global sector trends to exporting guides. For more information visit www.atradius.co.uk or follow @AtradiusUK on Twitter.