The 2020 Mid-Year Economic Update_long

Global Metals M&A Sees New Highs

The metals industry continued to consolidate in 2005, as leading producers sought to control the rising cost of raw materials by purchasing suppliers outright, according to a recent PricewaterhouseCoopers report, “Forging Ahead: Mergers and Acquisitions Activity in the Global Metals Industry 2005.”


Further mergers and acquisitions activity is likely, and China will be a significant source of M& A over the next few years as it continues to produce and consume steel at a record pace. Eastern Europe, Asia Pacific and Latin America will continue to be driving forces in industry consolidation. Companies in those regions accounted for deals worth $17.7 billion, or 51 percent of the total value of industry transactions worldwide, up 32 percent from 2004.


There were 250 metals industry deals in 2005, far surpassing the 166 in 2004. But the total value of deals in 2005 was just $35 billion, less than the $37 billion the previous year.


Notably, cross-border deals and their aggregate value rose sharply in 2005, with 99 transactions worth $17.2 billion, up 50 percent over 2004.


Steel Sector
The steel sector led the way in 2005 M& A activity with 165 deals worth $27.5 billion. The sharp rise in the number of transactions helped offset the absence of any deals comparable in size to the two that produced Mittal Steel in 2004. The single biggest deal Mittal Steel’s acquisition of Ukrainian steel producer KryvorizhStal was worth $4.6 billion, barely a quarter of the $17.8 billion that went into creating Mittal.


According to the report, global consolidation is not the only factor driving deal-making in the steel sector. Many of the largest deals in 2005 involved manufacturers eager to buy iron ore mines and reduce their raw materials costs.


For example, KryvorizhStal has over a billion tons of iron ore reserves. Similarly, Ural Steel and Sitbon Investments bought Mikhailovsky, Russia’s second biggest iron ore producer.


China
China now produces more crude steel than the next four largest steelmaking nations combined. The central government has signaled its determination to rationalize the sector, with the top 10 domestic producers controlling 50 percent of domestic output by the end of the decade.


Its new steel policy, launched in July 2005, has already resulted in eight transactions with an aggregate disclosed value of $1.1 billion 25 percent of the total value that was traded in the Asia-Pacific metals industry in 2005. China is also attracting interest from overseas steelmakers eager to tap into its growth.


At the same time, China’s steel consumption has quadrupled since 1998, with the construction industry playing a significant role in driving demand. In 2004, it accounted for 53 percent of total consumption, and that pattern is likely to persist for at least the next few years as the country invests in vast infrastructure projects such as the Three Gorges Dam and gears up for the 2008 Beijing Olympics and the 2010 Shanghai World Expo. China’s steel consumption is forecast to rise by 4-5 percent a year, outpacing the 3 percent in the rest of the world.


China however is reliant on other countries for high quality iron ore, and, as imports have soared, so have prices skyrocketed, according to the report. Energy and transportation costs have increased, and the domestic steel sector is highly fragmented and suffering from overcapacity in certain product areas.


These factors have eroded profitability resulting in a need to consolidate.


Resources
“Forging Ahead: Mergers and Acquisitions Activity in the Global Metals Industry 2005”
Metals Distribution Consolidates, by Lindsay Young, MDM

About the Author
Leave a Reply

Leave a Comment

Sign Up for the MDM Update Newsletter

The MDM update newsletter is your best source for news and trends in the wholesale distribution industry.

By subscribing, you are agreeing to MDM’s Privacy Policy.

0

articles left

This is your last free article

Subscribe to MDM Premium today and get:

  • Unlimited access to MDM.com
  • 1 year digital subscription, with new issues twice a month
  • Trends analysis, market data and quarterly economic updates
  • Deals on select store products and events

2

articles left

Want more Premium content from MDM?

Subscribe today and get:

  • New issues twice each month
  • Unlimited access to mdm.com, including 10+ years of archived data
  • Current trends analysis, market data and economic updates
  • Discounts on select store products and events

1

article
left

You have one free article remaining

Subscribe to MDM Premium to get unlimited access. Your subscription includes:

  • Two new issues a month
  • Access to 10+ years of archived data on mdm.com
  • Quarterly economic updates, trends analysis and market data
  • Store and event discounts

To continue reading, you must be an MDM Premium subscriber.

Get the Newsletter