Many European coil buyers currently see no alternative to paying exorbitant prices to secure the material they need for their production. But that may not save their businesses from a liquidity crisis.
Most observers see a general willingness among consumers to pay high spot prices if they need to close material gaps in a short time. One tells Kallanish of a recent spot deal for a smaller tonnage of hot rolled coil at €1,040/tonne ($1,239), when major mills were still about to jump the hurdle of €900.
However, one German manager points out that smaller customers, especially, who normally can pay cash, will now have to ask their banks for a loan to finance a purchase. “And that will be a growing problem as we go ahead, because the banks might not be all that willing,” he says.
This is especially so now that a case of collapsed financing has happened high up in the coil industry, with Liberty Steel losing its main lender. This is pushing liquidity problems downstream, as Liberty “has started asking its customers to pay in advance for current orders”, a Dutch service centre manager reports.
Another German buyer notes that “many customers are still paying, but also many are suspending investments, like delaying the construction of a building, etc”. He tells of a case of a construction plan with a cost quote amounting to €1 million in December. Meanwhile, the construction company came back asking for €1.2 million because the material costs have gone up so rapidly.
The result was that the deal was suspended, due to a domino effect of costs. “Now, the calculation does not work anymore,” he says. And this also involves banks and the financing. “I’d need to cover more of the costs by a higher loan, for which the bank would then charge a higher interest rate,” he concludes.
Christian Koehl Germany