Market Monitor Canada - Steel and metals

Competition in the sector is high, and there are clear signs of price wars as the industry is struggling with overcapacity and weaker demand.

In 2014 the Canadian steel/metals sector recorded 5.5% production growth, up to CAD 47.1 billion. However, since the end of 2014 and into H1 of 2015 growth slowed down, mainly due to decreased demand from the energy sector. This has resulted in growing overcapacity, decreasing sales prices and profit margins. While the lower Canadian dollar has increased steel export opportunities, global overcapacity issues have reduced this potential upside for Canadian businesses.
Competition in the sector is high, and there are clear signs of price wars as the industry is struggling with overcapacity and weaker demand. This is ultimately expected to result in reduced financial strength - especially for smaller and medium- sized players.
The average payment duration in the industry is 90 days. Payment delays have increased since the end of 2014, and are expected to rise further in the coming months, especially in the energy and mining related subsectors. Due to overcapacity concerns many companies are facing inventory issues, which is stalling their cash conversion cycle.
In general, our underwriting stance remains neutral for metals manufacturing and steel, however we have become restrictive on the energy and mining related segments due to the on-going problems in these industries.

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