More and more cash-strapped steelmakers are struggling to pay for services and equipment, with some resorting to last-minute cancellations or renegotiations, suppliers to the steel industry reported.

 

Suppliers to the steel industry are voicing concerns over growing instances of disregard by steelmakers for contracts signed for services and equipment. "It's really amazing how quickly the culture has reverted back to this medieval state," said Herwig Haunschmid, managing director at Vatron, a measurement and control devices subsidiary of Voestalpine and Siemens VAI, whose customers comprise of 90% of steelmakers. "It's a return to the fifteenth century."

 

"We've had delays, cancellations and re-negotiations after signing," Haunschmid said. Giving an indication of the scale of the problem, he added that cancellations represented 3% of Vatron's turnover, and delayed payments occured for 3-5% of turnover. "Russian and Ukrainian customers in particular are struggling to pay. The business culture is tougher there; they just choose not to pay." On the positive side, Vatron is often compensated for costs up to the time of cancellation, and delays help the company manage its order book, Haunschmid added.

 

"Handshake capability, or the likely ability to fulfill a contract, and contract water-tightness are now key considerations for us," Haunschmid said. "Also, we asked ourselves whether we should join this kind of behavior, but in the end we decided not to. We will simply treat people in the same way they treat us," he said.

 

When asked if any improvement in relationships was likely soon, he said; "No, I don't think so. Most steelmakers have difficulties with working capital and liquidity, so I'm sure if the economic situation worsens, trust in contracts will worsen too."

 

An Italian industrial automation systems business has had to contend with similar challenges recently. "The amount of invoices with delayed payments is definitely increasing," a company executive told Platts. "In some cases, we are told our customer's management has frozen all payments by default. In these cases, we have had to argue our case and use some leverage to receive payment." He added that the trouble had been with steel customers in particular, which make up half of the company's customer base.

 

Cancellations, renegotiations and delays are fairly common in the steel markets. Buyers of steel products will frequently seek opportunities to get out of a deal they preceive as unfavourable because of a shift in market prices. Likewise, steel producers occasionally have sought to amend long-term contract prices in mid-contract in the past year.

 

On one occasion in spring 2008, EU and US steelmakers sought a surcharge of Eur160/mt from annual contract holders for flat steel products, threatening an interruption of supply for those who refused. -Platts