WSD Strategic Insights XXII: The big challenge of bank financing

Tuesday, 22 October 2013 01:34:25 (GMT+3)   |   San Diego
       

Securing of bank financing on an attractive basis will remain a difficult challenge for many steel companies and those tied to the industry.  Inventory financing, specifically, will be a problem because the banks are apprehensive about a deterioration of the inventory value.  The poor financial performance of many steel companies since 2008, and the continued high volatility of the prices for steel products and steelmakers' raw materials have spooked lenders.  As a consequence, steel companies in many cases can be expected to:  a) hold back their capital spending; b) seek to sell off some of their assets; and c) enter into discussions to merge with others. 

However, steel industry M&A activity will be substantial in the years ahead.  However, there will not be a race to become the world's next 100 million metric tons per year steelmaker.  In fact, the world may have witnessed the end to the 100 million metric ton steelmaker.  ArcelorMittal in the second quarter of 2013 shipped only about 85.2 million metric tons annualized; and, some observers conjecture the company may be seeking to sell some of its plants. 

Multi-plant steelmakers, of course, tend to concentrate capital improvements at their best facilities.  This strategy, which makes sense, nevertheless causes a number of the company's older units to fall even further behind.  The longer the period that capital outlays are delayed, the greater the vulnerability of older plants in a low profit margin steel industry environment. 

 

 

 

 


This report includes forward-looking statements that are based on current expectations about future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict.  Although we believe that the expectations reflected in our forward-looking statements are reasonable, they can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including among other things, changes in prices, shifts in demand, variations in supply, movements in international currency, developments in technology, actions by governments and/or other factors.

The information contained in this report is based upon or derived from sources that are believed to be reliable; however, no representation is made that such information is accurate or complete in all material respects, and reliance upon such information as the basis for taking any action is neither authorized nor warranted.  WSD does not solicit, and avoids receiving, non-public material information from its clients and contacts in the course of its business.  The information that we publish in our reports and communicate to our clients is not based on material non-public information.

The officers, directors, employees or stockholders of World Steel Dynamics Inc. do not directly or indirectly hold securities of, or that are related to, one or more of the companies that are referred to herein.  World Steel Dynamics Inc. may act as a consultant to, and/or sell its subscription services to, one or more of the companies mentioned in this report.

Copyright  2013 by World Steel Dynamics Inc. all rights reserved


Similar articles

Mittal not expecting pre-crisis demand levels in developed world before 2015

16 Mar | Steel News

Mittal not expecting pre-crisis demand levels in developed world before 2015

16 Mar | Steel News