Credit insurers reduce cover to UK steel market
Leading credit insurers are reducing their risk appetite in the UK steel sector because of general economic uncertainty, and company-specific concerns they fear could be the harbinger of wider problems.
Issues at some of the UK's mills, a large decoiler, a large government contractor, a general steel stockholder and a host of smaller structural fabricators are souring insurers' appetite.
In the past few weeks the future of a large decoiler in the West Midlands has been a talking point in the marketplace as its creditors are in discussions with banks and insurers, and cover has been pulled. One mill is said to have had cover cut by some credit insurers, while another has been the subject of speculation in recent months given its innovative financing solutions.
The general market environment does not help the situation, with the firmer steel cycle of recent years now looking shakier. Decoilers are not making great margins with selling prices not too far above replacement costs, and there are concerns over demand levels. A no-deal Brexit could reduce UK automotive production, and as a result the steel requirements of a key end-use sector. The global automotive slowdown has had a marked impact on steel market sentiment in the UK and wider EU since the fourth quarter of last year.
Real demand has tapered off somewhat of late, mills and service centres said. And some fear it could fall dramatically post Brexit, as customers have been restocking previously in case of interruptions to supply.
Service centres have so far this year not had the good months where they can amass cash reserves that will get them through a quieter period.
Traders are not immune from the credit problems either. Those with large rebar and wire rod positions are having to put material into bonded warehouses, and finance the steel with their banks — short-term financing can be expensive, and there is the additional cost of storing material in such a warehouse.
Coface reduced its total UK exposure by 12pc last year, but will not elaborate on particular sectors. Euler Hermes, Atradius and QBE all failed to respond to requests for comment.
After the global financial crisis, some credit insurers dramatically reduced cover to the UK steel sector in 2009. Premiums increased so much that some companies tried to keep money aside in the event that buyers defaulted, rather than pay the insurers.
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