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Slump may hit metal companies hard

Insurers fear loan defaults this year.

Melbourne: As rock bottom commodities prices and overcapacity weaken balance sheets at beleaguered commodities firms, trade insurers fear further pressure from payment delays and defaults in China and India, particularly in metals.

A blowout in payment times and rising insolvencies at manufacturers in Asia would put more pressure on small and medium-sized metals traders, many of which are based in the regional commodities hub of Singapore, insurers and bankers say.

Swiss-based commodities trader Gunvor Group said last week it has started to dismantle its Singapore-based metals business, citing weak profitability and increased risk, including counterparty behaviour.

Payment times for metals are already rising from China and India, industry sources said, as overcapacity in commodities like steel and aluminium deepens a four-year old price slump that has left a majority of metals producers under water.

“Oil and gas may have hit the headlines across the world, but we think metals will be the key sector that will cause underwriters more sleepless nights,” said Michael Lum, an underwriter for specialist insurer Beazley at Lloyd’s. “A lot of these (Chinese) smelters that were economically viable when prices were high are high cost producers and when the prices do drop some will have nowhere to go.”

( Source : reuters )
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