Credit improving for most in metal industry

NEW YORK Fri Mar 12, 2010 11:19pm EST

NEW YORK (Reuters) - A year ago, nearly every executive at Reuters Mining Summit talked about unusually tight credit conditions brought on by the global financial crisis.

This week, executives speaking at Reuters Global Mining and Steel Summit indicated that while available financing remains a constraint for many, exporters and large, liquid metal miners and producers are having an easier time finding financing.

The last 18 months forced firms to clean up their financial statements, cutting costs and debt, and improving cash flow.

Most executives said they planned to keep in place many of the efficiencies learned when orders were down.

When business slid in the 2008 fourth quarter, many metal companies had to take extra measures to increase liquidity.

Novelis Inc NVLX.UL Chief Operating Officer Philip Martens said the company has worked with customers and suppliers to make sure they understood how its liquidity has improved.

"We've seen the concerns they had eight or nine months ago just go away. We have very good cash flow. We really have not had the calls we had last summer regarding credit," he said.

Nor is Atlanta-based Novelis, which sells aluminum sheet to U.S. and European auto companies and to beverage can makers globally, seeing credit issues with its customers.

"We're not looking for changes in our terms or conditions with them relative to accounts receivables or payable."

But some small or medium-sized metal companies, especially U.S.-focused businesses, still feel the credit squeeze. In some cases, weaker competitors have fallen by the wayside, unable to continue operating under stricter credit terms.

Reliance Steel & Aluminum Co (RS.N) Chief Executive Officer David Hannah, said credit is not an issue for them, "But we hear about it a lot."

Some of his competitors in the service center, or metal processing, industry have liquidity issues and are without available credit. As a result, they have had to take a more conservative business approach or declare bankruptcy.

In the current lean inventory environment, many manufacturing customers are placing orders with service centers expecting next day delivery. Without credit to keep extra material on hand, some have been losing market share, he said.

"That works to our favor, because we can process and ship material very quickly. About half of our orders are customers calling today wanting processed metal tomorrow," the CEO said.

As economic activity heats up, he added, most people in metal processing will be frustrated to see business opportunities and not be able to buy inventory to support it.

Molybdenum producer Thompson Creek Metals Co Inc (TCM.TO) (TC.N) CEO Kevin Loughrey said he does not foresee a double-dip recession. But the biggest potential threat to current demand growth would be, "If financing markets don't continue to rebound. Because (steel hardener) molybdenum gets sold to big projects that require financing."

Because 80 percent of the revenues from Schnitzer Steel Industries Inc's (SCHN.O) metal recycling business are export based, CEO Tamara Lundgren said, "We are not seeing credit constraining our customers."

She said Schnitzer ships to about 18 countries outside the U.S., including China, India, Turkey, Malaysia, Indonesia, Vietnam, Egypt, "where they were extremely effective in putting the infrastructure stimulus in place."

For large and intermediate miners, easy access to credit has allowed them to begin drilling activities in recent weeks, said Francis McGuire, Major Drilling Group (MDI.TO) CEO.

"We have seen those people, along with junior miners with verifiable results where the risk factor is low, get pretty easy access to money whether it is capital markets or credit. So they actually are putting drills out," said McGuire.

"There is still a big leg of the stool, call it the speculative class of juniors, that are really not able to get funding. And they were a big part of the action."

(Reporting by Carole Vaporean; editing by Carol Bishopric)

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