Eric Damotte, KPMG’s Global Head of Metals provides a perspective on the challenges and opportunities facing metals manufacturers.
Unfortunately, metals and mining companies are unlikely to enjoy much respite from a challenging market environment any time soon. Slowing growth in developing markets (long the main driver of metals sector growth) is not only dampening demand for metals products, it is also sharpening the overcapacity woes in mature markets such as Western Europe and the United States as well as in the developing economies – most importantly – China.
As a result, many Western metals manufacturers – steel producers in particular – continue to face growing competition from lower-cost markets. China has promised consolidation to address their massive oversupply challenge, but it will take time for this to translate into any reduction in the quantity of exports landing in Europe and other parts of the world each day.
Trade barriers and protectionist measures have quickly been set up in many markets in an attempt to protect domestic production. But, for the most part, these have only served to slow the free flow of metals products across markets and create deep uncertainty for metals producers overall.
Metals and mining organizations will also need to continue to grapple with uncertainty and disruption from regulation – particularly environmental regulation – as all markets (mature and developing) start to set more stringent emissions regulations and policies. This will have a direct impact on metals organizations themselves, as well as on some of their customers who operate in high-emission industries.
One positive sign is the increasing focus on innovation and partnerships across the sector. Metals organizations are no stranger to non-traditional competition (just think of how the introduction of alloys and new aluminum products is changing the dynamics for steel producers) and many recognize that they will need to innovate if they hope to remain relevant and valuable to their core customers.
Over the long term, things will improve. New products will drive new growth opportunities. China will (if promises are kept) cut oversupply. Structural global overcapacity will eventually be addressed, which will help reduce the fierce competition in the sector. And economic growth should return to the developing world. How metals executives manage the interim period however, will determine much over the coming years.
Q: What is the greatest threat to growth for metals manufacturers today?
Eric: Slow economic growth.
Q: What are metals companies doing differently do drive growth?
Eric: Innovation to protect the business.
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