Suppliers of iron ore and coal are becoming increasingly reluctant to deal on open account terms with Europe's steelmakers.

The suppliers are now asking steelmakers to pay cash-on-delivery or deal on letter of credit (L/C) terms.

Payment demands

Some suppliers are still extending some credit to their customers, but they are typically demanding much shorter payment terms than a year ago.

Other suppliers are insisting on examining their customers' balance sheet and cash flow and requiring L/Cs as a condition for delivery.

Business contraction

According to industry sources, Europe's steelmakers have not historically been asked by suppliers to deal on L/C terms.

A Swiss-based commodities dealer says he anticipates that with bank credit and therefore L/Cs becoming harder to access due to the current banking crisis, a substantial contraction of business in the steel sector can be expected.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.