The credit insurer for steel manufacturer Corus has said it will reduce the cover it writes for its business suppliers. A reduction in credit insurance could limit the value of deals done in the UK metals sector as companies attempt to reduce risk.
Corus insurer Euler Hermes has reduced cover for the companys suppliers because of the downturn in global demand for steel. Any cover it provides is written against the risk of Corus not paying its bills.
But a Corus spokesman denied that the move would damage the business, he said: Corus has not been hit by it [the credit insurance reduction] at all and its not affecting our business.
The company had a meeting with Euler Hermes today (18 February) but the spokesman said he could not comment on the outcome.
Flight from risk
A source close to the business said that there had been a more general flight from risk in the credit industry and this was most likely why credit had been withdrawn.
British Metals Recycling Association director general Lindsay Millington appealed for a calm response and said: The problem of credit insurance is affecting all businesses in the recession not just Corus. Its a problem that goes far beyond the metals industry.
BMRA, along with other trade associations, has been raising the issue with both the European Commission and the UK Government and we are hopeful the latter may be considering business support measures.
Commenting on the effect reduced insurance would have on scrap dealers and merchants Millington said: In recent months Corus has significantly reduced its buying from merchants relying heavily on internal arisings. This will mitigate the effects of any credit insurance cuts.
Many metal traders rely on export trade for the bulk of their business and as Corus has not been buying metal for some months now, this latest credit news may not have that large an impact.
Added 19 February:
Another large metals recycling company insider told MRW: Cash is very tight and you will see write downs on insurance. But this sends out the wrong message to the market that companies are in trouble. [Companies] are just not worth the same amount that they were a year ago, but we are all in the same boat and cash flow is paramount.
He said his companys credit insurance had been downgraded and as a result, equipment suppliers wanted to change their payment terms.
They want cash for equipment more quickly than before or even cash up front, which is the worst thing. The whole manufacturing sector needs a bailout plan from the Government. For example, an injection of cash to keep businesses going in these times when credit is hard to come by.
Such a policy has been supported by lobby group The Work Foundation. It has called on Government to step in, like it did with the banks, and bail out the sector to help save companies and jobs.