In 2021 and in the first quarter of 2022, the Polish metals and steel sector output and sales rose strongly, with elevated growth and profit. According to Atradius, this was due to pent-up demand after the height of the pandemic, followed by sharply increased purchases immediately after Russia´s invasion of Ukraine. However, metals and steel demand has slowed down since then, due to high stocks held by many customers and fewer orders, in particular from automotive and residential construction. This will make it more difficult to pass on higher input costs in the coming months, leading to decreasing margins. The decrease in steel prices since May will force distributors to sell off inventory at prices below purchase rates.

The Polish business environment is well above average, despite a perceived deterioration over the past years. The World Bank Institute’s annual Worldwide Governance Indicators surveys suggest that the regulatory framework is generally business-friendly though a certain level of corruption is still perceived as present and the legal framework has worsened since 2014. The Heritage Foundation’s 2021 Index of Economic Freedom survey assigns Poland rank 41 out of 184 economies, reflecting strong scores with regard to property rights, tax burden, trade freedom, investment freedom, and financial freedom. However, weaknesses remain in particular with regard to judicial effectiveness.

Payments in the steel industry take 60 days on average, and payment behavior has very been good during the past 18 months because customers had to pay promptly in times of high demand and limited supply. After the very low levels seen during the past twelve months, analysts expect both payment delays and insolvencies to increase as demand shrinks, metals and steel prices decline, and fiscal support schemes have expired. However, Atradius do not expect a severe credit risk deterioration, because many businesses in the industry are financially resilient after almost two years of robust growth and high profits. Additionally, sufficient gas supply does not seem to be an issue, despite the stop of Russian supplies to Poland in April. Allianz Environmental Sustainability Index puts Poland at rank 54 out of 210 economies, reflecting strengths in energy use and CO2 emissions per GDP, water stress, and general vulnerability to climate change, though there are still weaknesses in renewable electricity output and the recycling rate.

Downside risks could lead to higher insolvency numbers than currently expected. One would be a serious deterioration of German buyers as a major customer segment. Another would be a sharp monetary tightening by the Polish Central Bank in order to curb inflation. A third potential setback would be a delay in payments from the EU recovery funds, because of an ongoing dispute between the European Commission and the Polish government about rule-of-law issues. This would affect the economic recovery and infrastructure construction, the largest buyer of steel in the Polish market.