How can you protect your business when the economy shifts?
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Our international team of trade experts is here to help. Contact us to learn more about our coverage options for the Metals Industry or request a free, no obligation quote that includes credit reports for your largest trade partners.
Metals Industry
The metals industry encompasses base metals, including iron and steel, aluminum, copper, nickel, lead, tin, zinc, and more. Various applications exist for all these metals. Atradius covers businesses in numerous subsectors of the metals industry, including mining and quarrying, iron and steel, and metal manufacturing. According to S&P Global, the global metals and mining industry saw record cash flows in 2021 and 2022, contributing to reduced debt leverage and improved credit metrics. While the industry’s overall credit quality has improved in recent years, persistently high input costs, along with lower metal prices, are expected to result in softer earnings and cash flows in 2023.
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Atradius is here to help. Contact us to learn more about our coverage options or request a free, no obligation quote that includes credit reports for your largest trade partners.
In 2023, operators are primarily concerned about the ongoing high inflationary cost pressures. Metal prices remained strong throughout 2022 but have shown signs of slowing in early 2023 due to weakening global demand. Prices remained elevated throughout 2022, with a robust rally in Q4 due to positive sentiment as China eased COVID lockdowns, reopened its economy, and reports of a possible “soft landing” for the US economy. Prices have begun to slow down in Q1, as China’s reopening did not trigger a significant increase in consumption, and the Fed remains hawkish on rates. While earnings have remained relatively stable due to a buoyant price environment throughout 2022, the ongoing Russia-Ukraine conflict and the uncertainty surrounding China’s reopening create a volatile outlook for the remainder of 2023. With potentially lower prices and persistently high costs impacting margins, the industry is likely to experience softer earnings and slight increases in net debt leverage in 2023.
Technology related to renewable energy is in high demand as the world focuses on transitioning to renewable energy and sustainability, as we have discussed in some of our recent blog posts. Rare earth metals, such as cobalt, lithium, copper, and nickel, are essential to produce batteries, supporting renewable energy. Additionally, copper is used in various renewable technologies, including wiring for solar panels, hydro, and wind energy. Increased consumption of rare earth materials and other base metals in the development of clean energy technologies could pose near-term challenges for the mining industry, potentially outstripping its ability to increase supply. With the emphasis on a lower carbon future, ESG considerations are also driving significant changes in capital investment in mining exploration and new projects, as major players in the space realign their investment strategies.
In times of economic prosperity and expansion, the industry fairs well. However, in times of contraction, it tends to perform poorly. Understanding this, we closely monitor macro-economic factors, such as employment levels, inflation, and fiscal and monetary policy, which exert significant influence on the industry’s success. These factors affect the prices of base metals and semi-finished products, subsequently impacting how businesses operate and manage inventory and price risk.
Historically, the steel industry has been seen as vital to national interests, and domestic production has been encouraged and protected. But increased globalization has led to excess capacity and consolidation has been slow. China is the biggest contributor to overcapacity and has only recently started to shut down excess capacity.
Securing and developing sustainable supply chains can be a challenge, especially for mining, transportation and materials processing. This could lead to sourcing and commodity deficits for metals and steel producers. US automotive production rebounded in Q2 of 2023, supported by pent-up demand and continued easing of supply chain constraints. However, the ongoing strike in the industry presents a downside risk. What’s more, tighter lending standards and the ongoing slump in residential construction activity continue to drag on metals and steel growth.
We expect global basic metals output to increase by 3.6% in 2023, helped by the reopening of the Chinese economy early this year and decreased energy prices. In the medium-term, metals and steel performance will be affected by the extent to which China is successful in pivoting the economy away from investment-led growth through capacity closures. Steel inventory levels have sharply decreased in H2 of 2023, as businesses have destocked. In addition, the government is likely to force steel mills to curb production to 2022 levels, in a bid to limit carbon emissions.
We’ve been targeting a particular customer for a long time, and thanks to the quick turnaround in approvals from Atradius, we were able to secure their business.
Benefits to Credit Insurance
Trade credit insurance is a risk management tool that can help protect your company’s commercial accounts receivable from the devastating effects of loss caused by a bankruptcy or protracted default of your buyers. No company wants to face the unknown. At Atradius, we give our clients peace of mind knowing that their policy protects them from a customer’s sudden inability to pay. Especially in an industry that must adhere to high-cost environmental regulations, trade credit insurance can help with cash flow and to ensure companies are financially stable.
Atradius analyzes industry trends and the risk of every buyer to ensure you are working with stable customers. If a previously stable customer starts showing signs of deteriorating payment trends, Atradius alerts you right away so you can take steps to protect and insure your accounts receivable. By evaluating the supply chain from every angle Atradius can alert clients to trouble coming down the pipeline before there is a loss.
Companies in the midst of an intense growth phase may need to put up accounts receivable as capital to receive additional funds from a bank. Having a trade credit insurance policy with Atradius that mitigates your risk means banks are more comfortable loaning the funds you need.
Atradius can offer companies a team of experts to support their trade credit insurance needs. Atradius is a global company with a presence on every continent. With innovative services and practical tools to manage a company’s receivable and build the foundation for solid business growth and success.
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Atradius is here to help. Contact us to learn more about our coverage options or request a free, no obligation quote that includes credit reports for your largest trade partners.