Report Indicates Nothing Strong About Metals

In a Report entitled “Metals Deals 2008,” PricewaterhouseCoopers says that after forging ahead in previous years, metals industry deal-making fell away sharply in 2008 as world demand fell and prices plummeted.

PWC’s annual review of the metals industry concluded that the average deal in the first half of 2008 was US$301 million compared to US$318 million in the first half of 2007. In the second half of the year, average deal value plummeted to US$125 million and total deal value fell from a high of US$51.1 bn in Q3 2007 to a tenth of this level a year later.

“This year in metals M&A deal-making saw a dramatic and sudden about-turn,” says Jim Forbes, global metals leader at PWC. “Optimism that China would continue to compensate for downturns elsewhere was replaced by increasing concern about a weakening global demand, including China. A steep rise in commodity prices in the first half of the year was followed by a deep slump.”

Editor’s Note: Please see “In My Mine(d)” column this month on pages 8-9 by author Kobus van der Wath for more about what’s happening in China, including its position on the need for metals.

Big deals worth more than US$10bn plus were nowhere to be seen despite dominating metals deal activity in 2006 and 2007. PWC says this led to total deal value plunging from the record US$144bn in 2007 to US$60.6bn in 2008.

North American metal M&A activity fell sharply with the number of steel and aluminum deals being halved and the total value of deals dropped steeply from US$76.7bn in 2007 to US$15.8bn in 2008. Three quarters of North American metals deal value came from cross-border transactions, 83% of it for steel targets.

The largest North American deal was Russian steelmaker Evraz’s US$4bn purchase of the North American tubular operations arm of IPSCO from Swedish steel producer SSAB.

Similar record increases were recorded in South America, spurred by a number of deals for Brazilian iron ore assets. According to the PWC Report, although they only accounted for 8% of all deals, they contributed to 24% of worldwide metals deal value.

Total deal value in the region reached US$14.8bn up 54% on 2007’s US$9.7bn.