NACM’s Industries to Watch: Steel Slump Worsening

It would be an understatement to characterize lackluster global growth and accompanying commodities pricing declines as unkind to industries tied to steel production. New analysis out of the United Kingdom makes a strong case for risk-averse creditors around the world to be more mindful of steel’s escalating troubles and that it is among the top Industries to Watch for the second half of 2016.

Perhaps the most significant obstacles steel producers must face have gone unchanged: China’s growth rate is well-below expectations set in recent years, and it is causing supply-demand metrics to dramatically stymie prices. Another, less-discussed issue likely to cause even more strife is that of protectionist and interventionist trade policies, according to the Global Trade Plateaus: The 19th Global Trade Alert Report produced by research firm Global Trade Alert. As noted last week in the NACM blog, the analysis suggests anti-trade government policies are hindering global trade more than had been predicted as recently as one or two years ago.

“Developments in the steel sector are probably the most prominent example of overt trade policy tensions during the past 18 months,” the report notes. It found the following:

  • The number of harmful policy interventions enacted since 2015 is 118—exceeding the totals of the two worst years of the crisis era (2009 and 2013).
  • Approximately 80% of these polices hamper foreign commercial interests.
  • Discriminatory policies surged most noticeably in the first quarter of 2016, the beginning of election cycles for top leadership, including the United States, which was noted as the country both enacting the most protectionist measures and being affected by the largest number of such efforts from others.
  • Changes in national tax systems could impair the steel trade even more than “high-profile trade frictions reported in recent months.”

Continued interventions will only promote additional liquidity risk at firms around the world as well as “disrupt supply chains dependent on steel … and harm the competitiveness of downstream buyers,” Global Trade Alert warns. That said, deep industry problems already in play aren’t likely to cease.

Two U.S.-based steel companies (Essar Steel Minnesota and Columbus Steel Castings, Columbus, OH) filed for Chapter 11 protection this spring. Although Essar noted in its filing that the primary culprit was a lack of expected Chinese demand, Columbus Steel Castings highlighted a six-week furnace outage that brought production to a halt. Granted, the latter, which at the time was among the largest single-site steel production properties in the nation, was closer to the fringes of solvency already because of previously noted Chinese-influenced price and demand drops.

Meanwhile, the United Kingdom’s second largest steel producer (SSI UK) went straight to liquidation late last year. And Tata Steel continues to look for buyers as it plans to retreat entirely from the U.K. market.


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  • 09/18/16 - 09/22/16: Financial Statement Analysis 2: Credit and Risk Assessment
  • 10/02/16 - 10/07/16: Financial Statement Analysis 1
  • 11/13/16 - 11/18/16: Business Credit Principles

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Language Lets Ex-Im Approve Larger Deals

Some legislators are taking steps to extend the powers of the current Export-Import (Ex-Im) Bank of the United States. The House Appropriations Committee approved the fiscal year 2017 State and Foreign Operations Appropriations bill, which includes an amendment that would allow the two sitting board members to approve transactions above a certain amount.

The amendment modifies the quorum requirement through Sept. 30, 2019. Currently, three of the five board positions are vacant with three members being required to approve transactions of more than $10 million.

“The acceptance of this amendment to the appropriations would be an indication that the idea has bi-partisan committee agreement,” said Jim Wise, NACM lobbyist and managing partner at DC-based Pace LLC. Despite that support, however, Wise thinks it’s probable that the amendment and the larger appropriations bill may not move successfully through the legislative process. He explained that senior members of the Senate Appropriations Committee have shared with him that Congress will likely pass a continuing resolution appropriations bill, which means maintaining the status quo. “All new language would then become a casualty, including this Ex-Im amendment,” Wise said.

The bulk of Ex-Im transactions affect small business, but in terms of dollars, larger deals account for more volume. The Wall Street Journal reported that the 140 deals of more than $10 million the bank authorized last year represented 5% of all transactions approved and 80% by dollar volume. Fred Hochberg, Ex-Im president and chairman, noted at a Council on Foreign Relations roundtable in June that the largest transactions provide for the bank’s infrastructure.

It has been just over a year since the bank could approve large deals. The bank’s charter had expired in June 2015, and the institution was shuttered until December 2015.


NACM Regional Conferences

Connect, Network, Learn and Share

Held each fall, the regional conferences are a wonderful opportunity for members to learn and grow by attending educational sessions and network with fellow credit professionals from their respective geographic regions.

Eastern Region Credit Conference
September 14-15, 2016
Rochester Airport Marriott
Rochester, NY
Hosted by: NACM Upstate New York

All South Credit Conference
September 18-20, 2016
Hyatt Place Fort Worth
Historic Stockyards
Fort Worth, TX
Hosted by: NACM Southwest

Western Region Credit Conference
October 12-14, 2016
Renaissance Seattle Hotel
Seattle, WA
Hosted by: NACM Business Credit Services

Central Region Credit Conference
November 9-10, 2016
Crowne Plaza Hotel
Independence, OH
Hosted by: NACM Great Lakes Region

Worldwide DSO Stays Flat, Nations/Sectors DSO Vary

In China, the average days sales outstanding (DSO) is expected to climb to 92 this year, the highest level in the world. In Western Europe, the number is anticipated to drop one day, year-over-year, to 59. Worldwide, DSO for some 27,500 firms surveyed by credit insurer Euler Hermes for its latest report Worldwide DSO: Paying the Penalty for Low Growth, should stay level in 2016 at about 64 days.

“However, industries and economies that are already in a sensitive position, due to external shocks or wrong policy choices, are prone to pay a price,” said Euler Hermes’ chief economist Ludovic Subran. “Very interestingly there is sort of a U-shaped relationship between DSO and the economy. In normal times, the weaker the economic climate, the higher the DSO. Yet, DSO can also be shortened massively in very challenging times of defiance. This often results in a cash crunch for wholesalers and importers, a situation which is visible in countries like Russia, Brazil or Turkey today. DSO certainly plays an important role as a leading indicator of the overall confidence prevailing in the business community.”

By sector, DSO for industries that closely touch the consumer is typically shorter, Subran said. For example, the retail sector’s average DSO in 2015 was 27, with about a quarter of companies seeing payment in fewer than five days. Food, non-business services and transportation also saw average DSO below 50 last year.

Conversely, sectors like electronics, machinery and equipment and construction have the longest average DSO, waiting 89, 87 and 81 days, respectively, in 2015 to receive payment, the report found. “The first two sectors suffer from their upstream positioning, which transfers to them all payment delays happening along supply chains,” wrote Irene Herlea, junior economist with Euler Hermes. The construction sector is quite fragmented in terms of average DSO, with about a quarter saying they have to wait 113 days or more to get paid, and another quarter saying they get paid within 40 days.

The United States will likely see its average DSO at 50 this year, following 49 days last year and 50 in 2014, Herlea said. Further, half of U.S. companies are paid between 24 and 65 days, though there is still some fragmentation in DSO depending on industry sector. The pharmaceuticals and chemicals sectors, for example, relaxed their payment policies to increase DSO by four days. In pharmaceuticals, with an average DSO of 62, a rapid increase in drug prices has led health insurers to have more difficulty reimbursing funds advanced to laboratories. The chemicals sector’s DSO increase to 51 days comes amidst financial struggles in the fertilizers and plastics outlets.

Firms in the metals and energy sectors, on the other hand, decreased by four days their DSO to 57 and 50 days, respectively, as companies tightened payment policies “…in order to cope with reduced operating cash flows caused by the slide in commodity prices,” Herlea wrote.

In 2015, a quarter of companies across the globe were paid after 90 days on average, as another quarter were paid within 31 days, with the remainder receiving payment between one and three months, the firm said.


FCIB European Summit

World-class Education and Networking for International Credit and Risk Managers

November 13-15, 2016
Amsterdam, Netherlands
Steigenberger Hotel

Summit highlight: With continued turmoil in the markets, FCIB is offering two educational sessions on country risk.

Country Risk: Latin America

As troubling news from Brazil and Argentina remains a cause for concern to world markets, panelists from across industries and areas of expertise will discuss the current and future risks of trading in key Latin American countries.

Country Risk: Trading Conditions in Russia

Conducting business in “sanctions heavy” Russia requires informed sovereign risk analysis. Panelists will discuss how to mitigate risk, conduct business safely, and examine how perceptions of trade with Russia match the reality.

For more information and to register, visit .

Collaborate with Sales to Ensure Accurate Job Information for Liens/Bonds

Whether attempting to secure your mechanic’s lien rights on a project in California or elsewhere, collecting accurate information such as the correct job site address at the beginning of the job and using the sales team to help you retrieve the needed information is key.

“Job information is the cornerstone of the mechanic’s lien process,” said Chris Ring, of NACM’s Secured Transaction Services (STS) in a webinar Monday entitled Managing the Mechanic’s Lien Process State of California.

In a recent poll conducted by STS, 71% of respondents said their sales team was responsible for collecting job information, 18% said it was the credit team and 11% said both sales and credit collaborated in the effort. Most companies have the party that’s closest to the customer—the sales representative—gather the relevant information, Ring said.

Explaining the advantages to the sales team of obtaining the correct information about the owner, lender, prime contractor and subcontractors can go a long way in facilitating a more free-flowing exchange, he said. For instance, the credit team could explain that if the company has to write off a $15,000 order with a 3% margin because the proper information was not obtained and the account was not secured, sales of $500,000 in new business would have to be generated to offset the loss.

Once such information is collected, suppliers and others typically follow three steps to secure their mechanic’s lien rights: file a preliminary notice, file a lien or bond claim and file a lawsuit or foreclosure, Ring noted.

In California, for example, preliminary notices must be filed within 20 days of first furnishing. While a late notice may be served, it will only retroactively trap 20 days from the date of service. However, Ring noted that in California suppliers can submit a notice before the product is delivered to a job site. Also, businesses that file preliminary notices often have lower days sales outstanding (DSO) than the average.

The Golden State is also a “full-price lien” state, which means the claimant of a mechanic’s lien is entitled to the full amount owed from the owner, regardless of payments made to the general contractor.

California also gives suppliers another option to secure payment on construction jobs by allowing them to submit stop notices within 20 days of first furnishing labor or material. This notice halts draw payments from the owner to a general or prime contractor and often serves to encourage the general contractor in collection efforts, he said. Suppliers should never hesitate to use both the mechanic’s lien process and stop notice provisions on a job.

Still, the nuances in the California laws related to securing payment can be daunting for many businesses, Ring said. For instance, suppliers that provide installation services in conjunction with materials may be considered subcontractors and would need to obtain a relevant license. Ring suggested consulting with an attorney in order to avoid any undue liability related to proper licensing.

Need to talk about job information or specific project details? Visit or reach out to Connie Baker, CBA, the STS director of operations and a former construction credit manager at This email address is being protected from spambots. You need JavaScript enabled to view it..



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Coface Revises Six Global Region Assessments

Trade credit insurer Coface noted seven upgrades and six downgrades in its recent global assessment, which includes Emerging Asia, Europe, North America, Latin America and the Middle East and Turkey. Four of the improved sectors were seen in Western Europe, and five of the downgrades were noted in emerging markets.

Agrofood had medium risk attached to it with the exception of Latin America and the Middle East and Turkey, which had high risk. In two of the regions (Western and Central Europe), the automotive sector dropped to low risk due to a rise in consumer spending. Emerging Asia and North America held at medium risk and the Middle East and Turkey were elevated to high risk. Across the board, the chemical and transportation sectors held.

The construction sector itself, however, showed moderate improvement and was reclassified as average risk in Western and Central Europe. In the U.K., the agency noted three sectors required surveillance: construction, pharmaceutical and automotive.

Latin America continues to be associated with the highest risk worldwide due to its energy, steel and construction sectors being classified as very high risk—the maximum risk category.

Of the 12 sectors analyzed, health care held as the least risky. In North America, pharmaceuticals improved to low risk and textiles moved to high. The firm credited the decrease in fuel subsidies for elevating risk for the Middle East’s automotive, food, retail, and textile and clothing industries to high risk. Similarly, policies leading to public expenditure cuts caused emerging Asia’s construction sector to reach very high risk levels.



NTOs Can Improve Your Cash Flow

NTOs can be used as a strategy to boost cash flow, converting receivables into cash quickly.
NTOs can be used to reduce DSO.
NTOs can focus your customer's attention on your invoices.

NACM’s Mechanic's Lien & Bond Services answers your most technical questions, takes pride in handling your projects and triple-checks its work for accuracy.

MLBS is there with you, for you, every step of the way.

For more information, call Chris Ring at 410-302-0767 or visit



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