Credit Manager Magazine 9/2021

59 CREDIT MANAGER MAGAZINE WRZESIEŃ / SEPTEMBER 2021 Michael Samonas PhD, MSc, MBA is the Group CFO of SIDMA S.A., the leading steel service center in Greece with subsidiaries in Romania and Bulgaria. Along with his practical experience, he teaches specialized courses in Financial mo- delling & Equity Valuation at the American College of Greece – Deree and Mastering Credit Risk at Univer- sity of Piraeus & ICAP. He is a Fel- low member of Chartered Certified Accountants (FCCA) and a board member of the Hellenic Association of Risk Managers, a member of FER- MA, the Federation of European Risk Management Associations. He holds a BSc in Physics and is the author of Financial Forecasting, Analysis and Modelling: A Framework for Long- Term Forecasting,Wiley Finance Se- ries, Feb. 2015. Greek economy and HARIMA’s members. Greek Businesses have had to manage dual economic and health crises, which have driv- en remote working on an unprecedented scale, re-engineering of supply chains, and numerous bankruptcies, and consolidations. HARIMA having in mind the am develop- ments and the long-term risk outlook tries to find ways to help its members prepare for what may lie ahead. Foremost on their mind is their company survival as well as building resilience. And not only in relation to the ongoing pandemic impacts and competitive positioning, but also in relation to recently unleashed cyber-attacks, catastrophic cli- mate events and social unrest that demands workplace change. Prediction going forward My prediction is that going forward, the growth rate of the global economy is expect- ed to accelerate in 2H.21, as more econo- mies achieve widespread vaccination against COVID-19 and pent-up demand for services supports consumption rates. Overall, glob- al real GDP growth is expected at +5.8% in 2021, from -3.5% y-o-y in 2020 5 . Still, ex- traordinary uncertainty remains, as global economic activity is highly dependent on the path of the pandemic. In particular, the pos- sibility remains for further COVID-19 waves, as long as herd immunity is not achieved, with new variants of the virus clouding the outlook. Regarding the Greek Economy, risks are skewed to the upside in the long run mainly due to the RRF (Recovery and Resil- ience Facility) funding, which is expected to be activated from the second half of 2021. The National Recovery Plan combined with a structural reform agenda - aiming to im- prove fundamentals, strengthen infrastruc- ture and address institutional weaknesses – are expected to provide a unique opportu- nity for revitalizing the Greek economy and transforming its productive model towards an investment-driven growth pattern with sustainable growth rates. However, in the short run, downside risks are related to the “Delta” variant and the rap- id spread of the 4th wave of the pandemic within Autumn as well as the saturation of the vaccination programs in Greece and in origin countries of inbound tourist arrivals. Risk professionals in the steel sector Risk professionals in the steel sector, the one the company I work for operates, face one more challenge amid the post covid recovery one. That of the high steel price volatility and the risk associated with it. Steel service centers maintain substantial inventories to accommodate the short lead times and just-in-time delivery requirements of their customers. Accordingly, they purchase steel to maintain inventory at levels that they believe to be appropriate to satisfy the antici- pated needs of the customers based upon their forecasts, historic buying practices, supply agreements, mill lead times, and market con- ditions. The steel service center industry is cy- clical and volatile in both pricing and demand, and difficult to predict and maintaining the right stock level is crucial. Below is a graph of steel price evolution the last four years. Dur- ing the last year the prices have skyrocketed. There are many reasons for that. The main one is that during the early months of the 2020 shutdowns, many steel mills shut off production in fear that we were headed into a deep recession—maybe even a depression. In total, it was estimated that just over 30% of European hot metal capacity was taken out of the market . But that drop-off in demand didn’t last long. Soon, steel-heavy products were in high demand. That quick rebound caught steel mills off-guard. Activity levels in steel end markets rebounded. Strong de- mand, coupled with low supply chain inven- tories (following significant destocking in prior periods), have combined to support a rapid increase in steel spreads. This improve- ment is a temporal one and will be fully re- flected in H1.2021 financial performance. Nevertheless, prices at some point will start to fall as they have brought huge cost pressures to many downstream companies in the in- dustry. The risk companies with high inven- tories face, is to see their spreads disappear rapidly. Looking at the steel market 6 , the last time the price fluctuated sharply was in 2008, when some of the market players were not even established. The majority of key play- ers suffered record losses back in 2009. This is something we will try to prevent this time by populating the risk of overstocking and building various scenarios regarding the trig- gering event that will case this bubble to pop. 1 IMF, World Economic Outlook, April 2021 / World Eco- nomic Outlook, July 2021 / Press Release PR 21/218, July 2021 2 Eurostat, Quarterly national accounts - GDP and employ- ment, July 2021 3 European Commission, European Economic Forecast, Summer 2021, paper 156, July 2021 4 OECD, Economic outlook, volume 2021, issue 1 - Greece, June 2021 5 Source: OECD, Economic Outlook, May 2021 6 Steel market review, TATA Steel, June 2021 FECMA