Construction sector liquidity worries Polish distributors

Polish distributors are prepared to meet rising domestic steel demand, but there are worries over delayed payments in the construction sector. This was the opinion voiced by the steel distributors’ panel at the European Economic Congress in Katowice.

Chief executive of Polish distributor giant Konsorcjum Stali Janusz Smolka said most distributors should be able to cope with the requirement for increased working capital resulting from higher steel prices. The near-future outlook for Polish and German economic growth is bright, he added, although Polish steel demand growth will slow on-year in 2018.

However, there are some concerns over the construction sector. “The number of construction firm bankruptcies is increasing,” Smolka said during Wednesday’s panel attended by Kallanish. Those construction firms whose projects are now concluding with losses did not foresee there would be a 60% increase in steel price since 2016. “I don’t know how construction firms will deal with investors and with indexing this, but I imagine there will be problems with this increase in prices… However, I reckon this will not change the fact that we will realise these construction projects anyway.”

Jerzy Bernhard, chief of Polish distributor Stalprofil, re-iterated Smolka’s warning, saying that steel structures fabricators who supply the construction industry will increasingly delay payment to steel suppliers. Many will go bankrupt or be forced into restructuring, he added.

Meanwhile, Robert Agh, chief executive of distributor Ferona Polska, pointed out that, contrary to earlier forecasts, there has been no consolidation in Poland’s distribution sector. Poland has around 20 competitive distributors, 16 of which are in some form of purchasing alliance. This results in a “… Polish heaven” when prices are strong and all these firms are making good margins, but a “… Polish hell” when prices drop as the competition between the suppliers is intense. Agh fears any reduction in demand could lead to the latter scenario.

In terms of the future for the distribution sector, Jakub Grobarczyk, board member at Polish service centre Serwistal, said most distributors have invested in processing. This is because their customers require a greater degree of specialisation. “We’re not just talking about regular cutting or bending rebar, no, this is complexity of supply, complexity of realising a given project with our customers,” he opined. “This is a direction from which we will no longer return.

Bernhard added that distributors must invest in increasing the efficiency of truck loading systems, as often lorries are forced to wait 24 hours at stockyards before loading product.

Another hurdle for Polish distributors is labour shortages. Smolka pointed out a shortfall in lorry drivers has raised distributors’ freight costs. Agh explained that Western firms moved their manufacturing bases to Poland and the Czech Republic many years ago when labour costs were cheap, but their economies have since grown rapidly and labour shortages are now frequent. The situation in the Czech Republic is still worse, he emphasised, because Poland at least has a reserve of 2.5 million expatriates it can repatriate when wages rise.