Overcapacity and decreasing demand have increased credit risks for steel companies, with the imbalance not expected to be rectified before 2018, according to Coface.

China’s steel consumption decreased by 3.3% in 2014 and 5% in 2015, while its production capacity has continued to increase. Global production has started to weaken (by 3.1% at the end of February 2016), and many production lines have been paused, but supply is still outpacing demand. The resulting downward pressure on prices is being felt by steel companies, and Coface has observed a gradual downgrading of credit risk in global metal production.

With China now exporting its production surplus (steel exports went up 20% in volumes in 2015), companies in Europe, the US and emerging countries are most at risk.

The insurer now assesses the sector as very high risk in Latin America, emerging Asia, the Middle East and Western Europe, and high risk in Central Europe and North America.

Steel is now one of the least profitable sectors in the world (ranked 90th out of 94), and the deepest in debt.

However, Coface hopes for a rebalancing of supply and demand from 2018, when the first capacity reductions in Chinese production begin to be felt and the growing urbanisation of emerging economy makes for increased demand.

The automotive industry, machinery and construction all present growth perspectives over the medium term, the insurer adds.