Growing difficulties accessing credit financing are exacerbating concerns about metal supply shortages in Europe, hampering the import of material needed to fully replenish inventories and lending further support to regional prices.

Smaller trading firms and mills in particular are struggling to access commodity trade financing or credit financing, which have long underpinned European metal trade and facilitated imports. Conditions have been worsening for some time amid prolonged shipping delays and extreme price volatility for certain products, to the point that it is now a major concern for some market participants.

'It is tough and this is an issue,' a European manganese trader said. 'You run your business and you are used to doing something and now you need five times the financing. Banks take months to process this and by the time they do, prices move even more.'

This year's price volatility has posed a significant challenge and resulted in the financing of a given volume of metal costing more. Most credit providers use a limit when it comes to financing and so those limits are now being reached much faster.

Manganese flake has been one of the most volatile products this year owing to production cuts and surging shipping costs, opening 2021 at $2,100-2,150/t fob China but since rising by 116pc to reach $4,500-4,700/t fob today, meaning 1,000t that would have been valued at $2.1mn on 4 January is now valued $4.6mn before factoring costs for transportation, warehouse storage and other add-ons. Most providers provide a limit of $5mn for products such as manganese flake, market participants said.

On the transportation side, a global container shortage and reduced shipping capacity have caused lead times for many metals to balloon. Previously, most insurers have typically provided cover for 30 days - a fairly standard lead time for metals coming from south China to Rotterdam. 'Buyers are now asking for 60-90-day payment terms but credit insurers cannot get at this level,' a European ferro-alloy buyer said. 'Now limits are reached much earlier.'

Storage of material in Rotterdam warehouses is also becoming problematic. 'You have to have that amount of cash to keep the material and it is risky to buy 1,000t and put it in a warehouse because the downside is currently higher than the upside,' one trader said. 'I have turned down business as it would tie up a few million dollars for a few days,' the trader said.

Some steel mills have been reducing output because of the issues, a market participant said, noting that a client had turned down delivery of certain steel feedstock materials 'because they are in a cash squeeze' and not able to pre-pay suppliers.

Market participants also note that some banks and insurers have looked to pull out of trade finance in the past year. 'A lot of big players are leaving the market because the environment is not nice,' a silicon trader said. Scrutiny from finance providers has intensified, he said, adding that 'there has been also been a doubling down from places that have financing'.

By Yusuf Khan

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Argus Media Limited published this content on 16 September 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 September 2021 15:21:04 UTC.