“Cash is King!” so the old business proverb goes. It is, this is true. But what about the seemingly never-ending extending payment terms and the effect on cash for members of the MMTA? How does the widening chasm of payment terms between East and West influence recycling and sustainability of minor metals and what does the future hold?
In 2017 Moody’s reported the US corporate cash pile grew a further 5% to $1.9 trillion.
A good, well publicised example is Boeing; “Boeing Co (BA.N) is stepping up efforts to conserve cash, cut costs in its supply chain and trim inventory of parts in its factories, telling vendors it will take longer to pay bills… Under the new terms, Boeing is taking up to 120 days to pay, rather than 30 days as in the past” Reuters July 2016. A year later in July 2017 Bloomberg reports “Boeing’s free cash flow surged to $4.51 billion in the second quarter as the manufacturer squeezed costs out of its 787 Dreamliner jet program. That was more than double the tally analysts had expected — and Boeing channelled $3.4 billion of the haul to stock buybacks and dividends.”
Put simply, it would seem that some of the money that is effectively being ‘lent’ by the supply chain has just found its way directly into the pockets of those insisting that they need it. The position of stretched terms needs to be maintained going forward to keep cash flow parity and further extensions on terms required for any future gains…
Unfortunately, this example is by no means unique and is certain to have affected all of the MMTA members in some way or another. The negotiation of such terms often laced with the fear that willing competitors will ‘bend the knee’ and succumb to payment extension demands.
There is not always a right of wrong answer to recycling metals, material can often go down several avenues, especially where ‘Minor Metals’ are normally, by definition, a smaller constituent part of an alloy. There are many widely varying recycling examples that could be used to illustrate, but perhaps a good example is the recycling of Rhenium:
Rhenium is one of the scarcest elements, at less than 0.4 parts per billion in the earth’s crust, and used in complex nickel alloys, essential for high temperature creep resistance and high operating temperatures / efficiency in high-pressure turbine blades found in jet engines. The recycling of Rhenium is expensive, time-consuming and difficult, but absolutely essential to safeguard this natural resource for the future.
From the end of life removal, the canny recycler must identify this material from the mass of other components. These components often have coatings or inserts, which do not comply with melter specifications, prohibiting the use directly back into the same alloy. Instead, they have to go through a series of processes for the removal of coatings, consolidation melting, sometimes atomisation to a powder, chemical leaching and formation of Ammonium perrhenate (APR) before conversion to Rhenium pellet. After all this, a sale still needs to be made to a melter. This cycle can already take at least six months to perform, without taking into account consignment stock and payment terms, perhaps potentially extending this payment return cycle to 12 months plus. It is easy to see how, despite the absolute necessity to recycle Rhenium, end of life material can easily find itself going into a stainless steel or Nickel-Cobalt refinery route with prompt payment terms. This is sacrilege!
There is high-demand for processed revert, especially with complex Rhenium bearing alloys, due to the significant savings against prime raw materials. A supplier given the choice of outlets must now carefully consider the payment terms in the decision-making process. Payment terms in the Asian markets are typically a high percentage on despatch, versus common Western terms of consignment stock plus 30, 60, 90 or 120 days until payment is actually received. In reality, the difference of payment can be 6 months between East and West. Given the choice, even with a slightly lower price, the improved terms mean the cash can be returned and turned over again and again in that time period.
The extension of payment terms pushes up costs, more cash needs to be borrowed, and this can compromise the recycling of the world’s precious resources. Furthermore, it encourages more business to the East where new facilities are now producing more and more complex parts traditionally manufactured in the West. At the same time that there appears to be issues at some of these large American corporates, Bloomberg reports “How GE Went From American Icon to Astonishing Mess” with other well-known companies also having issues with significant falls in stock value during the last 12-months. Are we in the middle of a changing landscape, where these traditional household names are starting to lose their grip? Payment terms perhaps just part of the issue…
It is not all bad news though and the British Government has created the ‘Prompt Payment Code’ with Rolls-Royce as an early signatory. However, the recent collapse of Carillion shows that the Prompt Payment Code is still weak in its implementation as Carillion routinely abused its dominant position by mis-treating suppliers to mask its own financial deficiencies by commonly paying in 90-120 days even when payment was due in 30 days. And, Rolls-Royce isn’t in a strong position by recently announcing 4,500 job losses. The support and recognition of the issue from government is an encouraging sign, but much more needs to be done, especially in the US, which appears to value short-term maximization of stock value for the benefit of the few instead of safeguarding market share and jobs for the future.
More than ever these large western corporates need the support of SMEs to help navigate the challenges ahead, a big part of this is working on payment terms. For MMTA members there needs to be collaboration and cooperation with customers to resolve these issues, especially in a market with rising metal prices and cash not going as far. Members offering longer and longer terms to gain a competitive advantage ultimately set unrealistic expectations and damage our industry as a whole. By agreeing to shorter terms there are more options to be cost competitive and ultimately this will benefit the big companies. The moral of the story is to be brave and push for shorter terms because it facilitates strong creative solutions for recycling of Minor Metals for the future.
Stephen Hall, Advanced Alloy Services
Chair MMTA Sustainability & Recycling Committee