Market Monitor: Focus on the steel industry - Germany

Market performance at a glance
Germany

• Lower steel prices remain an issue
• Payments take between 30-45 days
• Decreasing insolvencies in 2014

In 2013, Germany´s steel production reached 42.6 million tons of crude steel: more or less the same as in 2012. However, according to the German Steel Association, German steel production increased 3.9% year-on-year in the period January- July 2014. In the first half of 2014 steel orders increased 4%, driven mainly by a rebound in orders from Germany´s EU peers (up 8%), while domestic orders grew 5%. This year the German steel sector is profiting from robust domestic demand (mainly from the construction and automotive industries), with apparent steel use expected to grow 4.5% in 2014. However, orders from the mechanical engineering sector have decreased as that industry is adversely affected by falling exports to Russia. Nevertheless, German steel businesses will take advantage of the economic rebound in the EU where, after a contraction in 2013, apparent steel use is expected to grow 3.1% in 2014 and 3.0% in 2015.

Despite increasing orders and production, German steel producers and distributors are facing some structural challenges. Steel prices remain low, due to persistently high European and global steel overcapacity coupled with growing imports from foreign competitors, and this has had a negative effect on businesses´ turnover. In 2013, steel prices decreased 10% and in many cases producers have been unable to pass on increased production costs. While profit margins remain weak, German steel businesses´ general equity and liquidity are better than the manufacturing industry average, except in the case of small wholesalers without pre-fabrication and/or steel service activities.

Even so, the German steel sector remains resilient with a competitive edge. We have seen no change in payment behaviour in the steel and metals sector over the past couple of months, with payments taking, on average, between 30 and 45 days. The number of non-payments notified to us in the last six months has been stable and we do not expect an increase in payment delays throughout the rest of 2014. We also expect steel insolvencies to decrease further in the short-tomedium term (down by about 2% year-on-year in 2014), in line with the overall trend in German business insolvencies.

Our customers’ demand for credit approvals in this sector has been high for a couple of years, and in general our underwriting policy remains fairly relaxed. We pay particular attention to recent financial information (balance sheets, interim figures, bank status, payment terms, duration of contract, order volume, payment behaviour). We remain more cautious about steel companies supplying the automotive industry as this subsector is traditionally very competitive and, because it is sandwiched between steel producers and car industry buyers, suffers from considerable pressure on payment terms and margins. The same goes for non-ferrous metal producers and processors, which have to cope with a volatile price development and a need for stock reduction.