The situation in the steel industry shows little prospect of improvement in the near future, and whilst trading conditions remain as they are cash flow will become an increasing problem, that unfortunately will lead to the demise of some players.
It is not only the low production levels, (total production in the first 13 weeks of 2009 was 13.66 million tons in the US a decline of 52.9% from 28.99 million tons produced during the same period a year ago), but the lack of available credit, that might strike the killing blow for some.
As banks and insurance companies have pulled back from their traditional role of financing company cash flows and providing credit insurance against bas debt, this role is falling to the steel producers and distributors themselves.
Whilst business has declined rapidly, particularly in the automotive and construction industries, steel companies are fighting over a much smaller pool of orders. Not only are there fewer orders available, but it is increasingly difficult, if not impossible to obtain any meaningful guarantees of the creditworthiness of customers. In a bid to maintain some level of production, steel suppliers are taking that risk, and sometimes the risk is not going to "pay off". Ironically any supplier to a steel company, will find they cannot get any insurance cover on the steelmakers themselves. The very same banks that brought about the crisis by reckless lending are perpetuating the desperate economic climate by withdrawing their support even from profitable enterprises that need short to medium term assistance.
Until the banks start to lend again (isn't that what they are in business for?), things are going to continue to get worse, and the longer we remain in this situation the more companies, including those in the steel sector are going to run out of cash.
It's only just over a year since rising steel prices and demand were pushing up steel company share values faster than MP's expense claims at Westminster. Who would be an economc forecaster?
There is an interesting article here at Mineweb about a recent Steel Industry conferance in Athens