Supply chain collapse during pandemic hurting German steel processors

German steel processors are getting hurt from being in the middle of the supply chain as customers refuse deliveries while pre-material suppliers insist on supplying the same volumes, German steel processing association WSM said Wednesday.

WSM made an appeal that companies in the supply chain should work together in the current situation “so that risks are not being one-sidedly passed on.” “Because demand and production are drastically decreasing, supply chains are under a lot of stress. The crisis of 2008-09 showed that it is important to keep up supply chains and ability to supply,” WSM said.

Customers that demanded short-term delivery until very recently would now be cancelling orders and refuse purchase, according to WSM.

Steel processors are in a “sandwich” position as they receive their pre-material from producers such as steel mills, process it and then deliver to their customers, which is primarily the automotive industry that is itself heavily hit by decreasing demand and production stoppages.

“Some have not communicated and toughened up their position with legal phrases. Suppliers of pre-material are not willing to make adjustments to volumes,” said WSM.

The association also decried the slow processing of financial aid for medium-sized enterprises as more than 90% of steel processors are currently under the short-time working scheme which entails reduced working hours and support from the government for workers wages.

The association said that banks are currently checking credit risks very thoroughly and problems have arisen due to late payments by the government’s employment agencies that pays out workers under the short-time working scheme.

Most of the companies on reduced shifts have axed working hours by half. More than 15% have also send workers home as they stopped production entirely.

A cold-rolling source told S&P Global Platts they would be enforcing a three week stoppage and continue with short time working. “The auto supply chain has collapsed. Some say ‘how can you stop for three weeks’ but at the same time they are not taking any deliveries,” the source said.

“Maintaining liquidity is the most important issue in a massive crisis like this. Medium-sized companies have to have quick and unbureaucratic access to funds. This not only applies to smaller companies but also to medium-sized enterprises,” sais Christian Vietmeyer, general manager of WSM.

— Laura Varriale