Week in Review

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France halts British visitors; EU nations tighten borders as Omicron rises. France imposed travel restrictions on travellers from Britain on Thursday due to surging COVID-19 cases there, and several European countries also strengthened border controls on visitors from other EU states. (Reuters)

Goodbye, supply chain crisis of 2021. Hello, supply chain crisis of 2022. The supply chain bottlenecks that have become a fixture of global trade will persist well into next year, according to industry forecasts, but are likely to ease by the start of 2023. (Global Trade Review)

China’s covid-zero lockdowns loom over the global supply chain. A new covid-19 lockdown imposed on December 7 in the port city of Ningbo, China, is raising the specter of further disruptions to an already battered global supply chain. (Quartz)

How sourcing impacts the supply chain. Sourcing greatly impacts an organization’s operations, so establishing long-term relationships will help companies gain a competitive advantage. Because after all, suppliers impact a company’s operations on many levels. (Shipping Solutions)

Bank of England raises interests, diverging from other central banks. Britain became the first G7 economy to hike interest rates since the onset of the pandemic on Thursday, with the U.S. Federal Reserve also signalling plans to tighten in 2022 but the European Central Bank only slightly reining in stimulus. (Reuters)

Los Angeles port sees record 2021 imports despite supply chain snags. The Port of Los Angeles—the nation’s busiest—is on track to move a record volume of import cargo this year, even as officials struggle to thin a backup of ship traffic and ease supply chain snarls that have been blamed for product shortages and higher shelf prices. (Business Mirror)

Russian central bank to seek ban on investment in cryptocurrencies. The Russian central bank wants to ban investments in cryptocurrencies in Russia, seeing risks to financial stability in the rising number of crypto transactions, two financial market sources close to the bank said. (Reuters)

Angry French fishermen threaten British imports. Fishermen in northern France have threatened to disrupt British imports in a bid to increase pressure on London to grant them more licenses for UK waters. (EurActiv)

EU’s international procurement law one step closer to completion. Half a year after EU member state agreed their common position and nine years after the Commission first proposed it, the European Parliament voted its negotiating stance on an instrument aimed at ensuring access of European companies to public procurement markets outside the EU. (EurActiv)

Labor market exits and entrances are elevated: Who is coming back? Even as the unemployment rate has fallen back to historically low levels, the labor force participation rate (LFPR, which measures the share of the population that is employed or is unemployed and looking for work) remains depressed. This report takes a deeper dive into who is returning to work—and who is not—to better understand how the balance of the recovery might unfold. (Brookings)

Supply chains not likely to untangle in time to save the Fed from hiking by mid-year. It seems the supply chain issues will continue to be with us well into 2022 and beyond. (SouthState)

Lessons from Hollywood’s digital transformation. In 2015, one might have imagined that the major motion-picture studios would simply shrivel up and die, as new entrants such as Amazon, Netflix, and Google disrupted their industry. But they haven’t. And the reason they haven’t reveals a path forward for managers in other industries facing digital transformation. (Harvard Business Review)

Taiwan's referendums and what's up for a vote. Taiwan voted in four referendums on Saturday that could have a major bearing on its energy and trade policy and are a key test of support for the ruling Democratic Progressive Party (DPP) and the main opposition party, the Kuomintang (KMT). (US News & World Report)

Poll Question


Western Europe: Payment Practices Barometer

Denmark recorded the highest percentage of late payments and bad debts, respectively 62% and 14% of the total value of B2B receivables, according to trade credit insurer, Atradius. However, for the region as a whole, late payments accounted for 53% of the total amount of B2B receivables, an increase from 47% last year, the firm’s Payment Practices Barometer for Western Europe shows.

The percentage of permanently bad debts rose from 7% to 10% of the total receivables value, which is higher than the 5% unchanged from one year to the next reported for neighboring Eastern Europe.

Half of all B2B sales in France were made on credit, up from 44% of sales reported last year. 40% of the companies surveyed reported a deterioration in the average time to payment, with a significant proportion of companies indicating that they had responded to cash flow problems by delaying payments to suppliers. The payment delays are now 12.2 days increased compared to last year. An increase in failures of 23% is expected in 2022. 57% of companies indicated that they experienced an increase in the administrative costs of managing accounts receivable and 31% spent more on debt collection.

The deterioration of payment practices in Western Europe this year has led to an increase in demand for credit insurance, with more than half of businesses in the region planning to use credit insurance next year. 

“Companies have already weathered the economic downturn due to the pandemic, but there are signs that next year could be significantly more difficult,” said Andreas Tesch, chief market officer for Atradius. “Globally, we expect defaults to increase by around 33%. In Western Europe, estimates notably predict an increase in business failures in France, Italy and the United Kingdom, by 23%, 34% and 33% respectively. Businesses will need to consider the increased risk and take action to protect their accounts receivable.”

The survey also asked businesses how they operated during the pandemic and the impact of restrictions on the movement of people and goods on their business. The majority of them indicate that they have accelerated their digitalization, and many have definitely adopted digital tools (use of the Cloud and software allowing e-commerce and teleworking).

The Atradius Payment Practices Barometer survey was conducted in third-quarter 2021, with companies from 13 Western European countries. The results analyze payment behavior in specific sectors and markets and can help assess the level of market confidence.


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Portugal: Political Stability Endangered

The PRS Group

Portugal was rocked by political instability in October when the two far-left parties that had helped to sustain Prime Minister António Costa’s minority PS government in power for six years withdrew their support in protest over what they perceived to be undue constraints on public spending. As a result, a snap election will be held on January 30, nearly two years ahead of schedule.

The move by the Communist led CDU and the BE was somewhat curious, given the fact that the government has maintained a strong fiscal stimulus with ample support for vulnerable groups and its room for maneuver figures to be enhanced by Portugal’s access to more than $19 billion in loans and grants from the EU post-pandemic recovery fund. But the acerbic exchanges between the Socialists and their erstwhile allies in the aftermath of the breakup made clear that theirs was a marriage of convenience and nothing more.

The PS maintains a solid lead in polling, its position bolstered by a rather successful record of managing the COVID-19 crisis. Portugal is seen as one of the safest places to visit in Europe this winter, a perception underpinned by a very high vaccination rate of more than 80%, a level equaled only by Malta among EU members. The PS would need a net gain of eight parliamentary seats to claim an outright majority in the 230-member Assembly of the Republic, which will be a challenge, as the party’s natural constituency has several left-leaning parties to choose from, as well as a populist-right party that holds some appeal for blue-collar voters.

Infighting within the opposition diminishes the likelihood that the PSD might emerge from the elections in a position to replace the PS in power. Consequently, the main question is whether and how Costa might win confirmation of a government if the Socialists fail to secure a majority. The defection of the far-left parties has increased the risk of a protracted deadlock (and the possibility of multiple elections) that undermines investor confidence.

The uncertainty comes at a time when the pandemic-fueled surge in the gross government debt has focused attention on the need for structural reforms that the PS has carefully avoided in the interest of maintaining good relations with the CDU and the BE. Further delays could negatively affect investor sentiment and Portugal’s credit rating, a risk that would be all the more pronounced if the next government’s survival depends on the support of parties to the left of the PS on the ideological spectrum.

A recovery in the services sector and reduced unemployment will reinforce the positive economic impact of a broader global recovery, underpinning real GDP growth of 4%–5% in 2021- 2022. Apart from the potential for a damaging setback in the global battle against COVID-19, the main risk to an otherwise bright economic outlook stems from the possibility that higher inflation might dampen domestic demand. Inflation is forecast to average less than 2% in 2021, but higher energy prices and wage demands are producing considerable upward pressure.

The analysis above is taken from the November 2021 Political Risk Letter (PRL). The best-in-class monthly newsletter, written by the PRS Group, provides concise, easy-to-digest briefs on up to 10 countries, with additional recaps updating prior month’s reports. Each month’s Political and Economic Forecasts Table covers 100 countries, with 18-month and five-year forecasts for KPIs such as turmoil, financial transfer and export market risk. It also includes country rating changes, providing an excellent method of tracking ratings and risk for the countries where credit professionals do business. FCIB and NACM members receive a 10% discount on PRS Country Reports and the PRL by subscribing through FCIB.

Steel Price Started to Decline

Matthieu Depreter, Analyst, Credendo

Key material in the manufacturing sector, steel barely suffered from the drop in demand in 2020 following the Covid-19 pandemic. Prices started to rise at the end of 2020 and skyrocketed in 2021. The main reasons for this movement are to be found, on the one hand, in the lower production given the pandemic-led restrictions and, on the other handa, in the unexpectedly strong demand in China manufacturing sector. 

Steel prices also were supported by high iron ore and cocking coal prices (key inputs in the steelmaking process) that reached record highs in 2021 (90% year-over-year). However, since then, steel prices are dropping: 8% by the end of November. In the meantime, iron ore price declined but remains at an historically high level—around 96 USD/MT on average for the first week of December—which is above the three-year average price of the pre-pandemic level, but below the 2020 average price. Cocking coal price in China also is dropping, but it is still very high in comparison to previous years. Logically, when the two major inputs of the steelmaking process increase in such a significant way, the reduction trims company margins. Over recent years, the volatility of the price of these two key inputs represents a risk for the sector. However, low production costs in some countries can mitigate the risk for producers located in these countries.

A Demand-Driven Sector

The steel sector is a demand-driven sector. This means that an (unexpected) variation in demand can lead to significant price movements, while production is in principle more stable. In fact, China has a very large role in global demand, since the country consumes the majority of steel produced in the world. Hence, lower Chinese demand for steel usually leads to lower steel prices, even if local differences in prices exist depending on the region and the type of steel. The main risk impacting the steel sector is therefore its heavy dependence on Chinese demand. The latter is influenced by policy put in place by the Chinese authorities. In early December, China’s Politburo announced a loosening of tight policies, which are hitting the property sector, because the Politburo wants to prevent a sector crash and socio-economic instability. It should result in a moderate momentum, at best, for the real estate sector in 2022. This could also translate into higher demand for steel, which would be welcome given the oversupply in the domestic market, and likely to stay so next year. 

Globally speaking, the demand for steel is expected to increase steadily over the coming years, driven by demand from the construction, machinery and automotive sectors. The expected rebound in the automotive sector is particularly positive for sales in the steel sector because it is the second sector in terms of steel consumption, but also because the steel consumed is of high added value (and therefore high margin for steel producers). However, in Europe and Japan, the recovery of the automotive sector could take years before reaching pre-pandemic production volumes, which should temporarily cap the recovery. Consequently, a lower-than-expected recovery in the automotive sector could hamper demand for steel.

According to the World Steel Association, October 2021 steel forecast, Chinese steel demand is expected to remain stable in 2022, although recent measures announced by the Chinese Government could lead to a slight increase in demand. All in all, global demand is expected to grow slightly in 2022.

Finally, the rise of global protectionism in the steel sector could be an opportunity, at global level, for domestic manufacturers that would see foreign competition reduce. However, this is a threat to countries with a positive trade balance, such as Japan, Russia and South Korea. To illustrate, in January 2026, the European Union will fully implement the Carbon Border Tax that could result in a drop in steel imports into the EU (unless paying high entry taxes), hitting exporters of steel to the EU, amongst others. Protectionism should therefore be considered a significant risk for companies relying on external markets. 

China Dominates Production

Global production is led by China, which produced 56.5% of global production in 2020. Even this year—a challenging year for global steelmakers—Chinese producers increased their production by 5.2%, while Indian production (second in the world, far behind China, which produces approximately 10 times more) fell by 10.6%. In 2021, Japanese production fell by 16.2%. In 2022, expected global production should return to pre-crisis level, according to data from IHS Markit.


In 2022, steel demand is expected to grow slightly worldwide, while the market is likely to remain oversupplied. The biggest risk for steel producers remains a drop in demand from China and its related downward impact on steel prices. In addition, risks arise from the input price volatility and the trade tensions (in particular the development of China-U.S. relations and tensions between China and Australia, as well as adoption of new protectionist measures). All in all, steel prices are likely to continue to fall along with the drop in iron ore prices but remain elevated compared to their historical level.

Reprinted with permission by Credendo.

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Week in Review Editorial Team:

Diana Mota, Editor in Chief and David Anderson, Member Relations