Competitive price pressure has led to deteriorationg profit margins for steel producers as well as steel and metals distributors over the past 12 months.
The direct impact of US import tariffs has been low so far, given the limited share of exports to the US (5% of total Polish steel exports). However, the indirect impact on the domestic steel market has been high, due to a sharp increase in (cheap) steel imports from non-EU producers (mainly from East Asia, Russia Ukraine and Turkey), redirected from the US. This has led to a significant price decrease for many steel products (mainly hot rolled coils and sheets, HEB profile and ribbed bars).
The competitive price pressure has led to deteriorationg profit margins for Polish steel producers and the steel and metals distribution segment over the past 12 months, and a further deterioration in the coming months is expected. Higher emission trading and electrity prices have a visible impact on Polish metals and steel producers since H2 of 2018. According to the World Steel Association, steel production in Poland decreased 6% year-on-year in H1 of 2019. Currently it seems that EU measures to protect the common market from large volumes of cheap steel imports from overseas are still inadequate.
Despite those issues there are still good bussiness opportunities for Polish metal and steel businesses, as domestic demand remains robust. Demand for building office spaces and residential buildings remains high, while elevated public spending on infrastructure (roads, rail) and the energy sector (powerplants) is ongoing, strongly supported by EU funding.
Another issue for Polish businesses remains the split payment scheme aimed at reducing VAT fraud, which has raised concerns about deteriorating liquidity due to the freezing of business funds related to VAT on a dedicated account. Failure to comply with the provisions may result in sanctions on both the supplier and the buyer.
Payment experience in the metals and steel sectors has been good over the past two years, and steel and metals business insolvencies have not increased so far in 2019. The current slowdown in the automotive industry has not yet led to deterioriation in the payment experiences of metals and steel suppliers. However, with the new split payment tax regulation delays in payments to smaller companies are expected to increase.
Our current underwriting approach remains neutral due to the satisfactory performance seen in 2018, when businesses were able to accumulate capital and increase their financial resilience. However, we continue to monitor the impact of cheap steel imports from outside the EU. The key factor of success for Polish metals and steel distributors is a proper stock policy and prudent anticipation of price trends.
İlgili dökümanlar
1.06MB PDF