Still robust demand from construction, but downside risks persist.
Although the steel and metals sector accounts for just about 1% of Dutch GDP, it is important as a leading supplier for construction, automotive and machinery. The industry is highly dependent on domestic construction sector performance. Additionally, many metals businesses are oriented towards exports.
The industry still benefits from ongoing good demand and filled order books (e.g output of construction as a major buyer sector is forecast to increase 6.5% this year). However, Dutch businesses are increasingly reluctant to invest due to the ongoing geopolitical uncertainty, supply chain bottlenecks and higher interest rates. An enduring war in the Ukraine and persistent disruption of the energy market could lead to a contraction of about 2% of metals and steel sales.
After recording profit margin increases in 2021 and in Q1 of 2022, metals and steel producers face increasing pressure on their margins due to the very high energy prices, which are difficult to be passed on entirely to customers. Some companies have already started scaling down their capacity and/or finding alternative energy solutions, reducing gas dependency.
Length of payments in the Dutch metals and steel sector largely depends on the position of individual businesses in the supply chain, but usually takes about 60 days on average. Payment behaviour has been good and the number of insolvencies low during the past two years, helped by Covid-related fiscal stimulus for Dutch businesses. However, as fiscal support expired at the end of March 2022, and with a negative impact of the war in Ukraine on Dutch economic performance, we expect both payment delays and insolvencies to increase in the coming twelve months. The amount of that increase is currently hard to assess with the ongoing economic uncertainties.
Taking this into account, but also noting that there are sufficient order backlogs at hand, that most businesses are not overly leveraged and that banks are still willing to provide loans, we currently assess the credit risk situation of the Dutch metals and steel industry as “Fair”.