The UK metals sector is operating under sustained and compounding pressure. Recent analysis from Tokio Marine HCC1 highlights a convergence of structural and cyclical challenges: global overcapacity, persistently high energy costs, and the introduction of new trade and carbon regulations. Together, these factors are increasing credit risk across the supply chain and testing the resilience of even well-run businesses.
For firms operating within the sector — and those supplying into it — understanding how these pressures translate into counterparty risk is now essential.
Below, we outline the key themes shaping the market and why trade credit insurance has become a more active risk management tool for 2025 and 2026.
Insolvency risk is increasing — even among large players
Despite a marginally stronger macroeconomic outlook than some European peers, the UK metals sector remains under strain. High interest rates, restricted access to finance and structurally weak margins continue to test balance-sheet resilience.
The report highlights the emergency government intervention required in 2025 to prevent the collapse of two major producers. When businesses of that scale are under pressure, the consequences are rarely contained. Stress quickly transfers down the supply chain, exposing smaller manufacturers, processors and distributors to delayed payments, restructurings or outright insolvency.
For suppliers, this creates a risk environment where credit losses can arise suddenly — and not necessarily because of poor trading decisions.
Trade barriers and CBAM introduce a new layer of pricing risk
Export conditions are becoming more complex. US tariffs on UK steel remain in place, while the EU’s Carbon Border Adjustment Mechanism (CBAM) came into force from 1 January 2026.
CBAM-related costs are expected to feed through to pricing, with estimated increases of between £80 and £2002 per tonne depending on product type and carbon intensity.
In practice, this creates significant volatility — particularly for businesses operating on fixed-price or long-term supply contracts.
Where customers struggle to absorb these increases, the risk is not limited to margin erosion. It extends to contract performance, delayed payment and, in some cases, non-payment.
Energy costs continue to undermine competitiveness
Energy remains one of the most significant structural challenges facing UK producers. Electricity accounts for between 20% and 40% of steel production costs, and the UK continues to face the highest industrial electricity prices in the G7.
Although prices have eased from their peaks following the start of the Russia-Ukraine war in 2022, they remain elevated relative to historic levels. In the meantime, UK firms continue to compete with subsidised global supply, particularly from China, further pressuring margins and liquidity.
From a credit perspective, this cost-push environment disproportionately affects businesses with limited pricing power or inflexible customer contracts.
Weak demand compounds payment risk
Supply-side pressures are being reinforced by falling demand in key downstream markets.
- UK automotive production is forecast to decline further.
- Manufacturing output has shown continued year-on-year contraction through late 2025.
When customers scale back production or delay orders, payment behaviour often deteriorates gradually — first through extended terms and slower settlement, before more acute stress emerges. For suppliers, this increases working-capital strain precisely when external financing is least available.
Managing credit risk in a volatile market
n conditions like these, credit risk cannot be managed on instinct alone. Trade credit insurance is not simply a backstop against insolvency; it is a forward-looking risk management tool.
Used properly, it provides independent insight into customer strength, early warning of deteriorating risk and a framework for making informed trading decisions in volatile markets. For many metals businesses, it has become a way to trade with greater confidence — even as economic and regulatory pressures continue to build.