By Ben Simmons
The global metals deals industry is soaring back to success with near historic value highs of US$40.7bn in 2011, up 56% year on year (YOY), according to a new report published today by PwC.
In its annual in-depth metals M&A review and forecast, Forging Ahead, experts say the industry is rebounding strongly from its post credit-crunch low and is now averaging more than 500 metals deals a year. In 2011 there were 533 total deals with an aggregated value of US$40.7bn, compared to 2010’s 547 deals amassing US$26.1bn. This is significantly above the pre-credit crunch highest volume of 411 in 2007. Looking back to 2009 this value reached a low of US$15.1bn.
“For the first time, our forecast for the next year is supported by our in-depth forecasting methodology which tested the historical relationship of metals M&A along with a variety of macroeconomic variables, to predict a jump of 23.5% in deal numbers and 15.7% in deal value for 2012," commented Jim Forbes, global metals leader, PwC. "Overall, PwC forecasts moderate growth in the deals market but momentum will continue.”
Despite these strong building blocks, the report stresses that caution will be the ‘watchword’ for 2012 as all eyes will be on how the eurozone crisis plays out, the stability of the US economy, developments in Chinese real estate, which is responsible for almost half of deal activity there, and fuels its construction sector.
Raw materials, security of supply and the entire supply chain itself will continue to be a major M&A theme. With China reportedly producing the vast majority of rare earth metals, concerns have been raised over how these and other raw materials, are sourced, exported and controlled.
Concerns about security of supply are not restricted to metals raw materials however. Chinese and Indian steelmakers are facing shortages in coal for energy due to high prices and inefficiency in the domestic coal sector, leading them to consider international supply and M&A options.
“Supply chain security will be a big theme for the industry," continued Forbes. "Metals companies will continue to seek greater certainty over raw materials and we are already seeing the emergence of manufacturer alliances which will allow companies to pool investment.”
Other key areas to lookout for will be the performance of the US economy, which if it weakens could dampen the outlook for China deals, the report says. China, by its sheer size and stature in the metals market will also undoubtedly remain one of the key global drivers in the metals deals sector as more than half of global iron ore trade is bought by the nation.
China’s steel sector is primed to undergo a long awaited consolidation with India also expected to follow suit after a landmark deal last year.
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