Given the tight relationship between the fortunes of the global economy and that of the global metals and mining industry, it does not bode well that fewer than half of the senior metals executives responding to the survey, which is reflected in KPMG International’s 2016 Global Metals & Mining Outlook, voice any level of confidence in the prospects for the global economy over the next 2 years.
Yet while confidence in the global economy is low, the KPMG survey suggests that most metals executives believe they can survive – maybe even grow – in the medium term. Indeed, almost two-thirds say they are confident of achieving growth in the next 2 years and 63 percent believe the industry will achieve a measure of growth over the same time period.
According to Eric Damotte, KPMG’s Global Head of Metals:
“When growth does return, the market will likely be significantly different than in the past, particularly given the structural changes taking place and the environmental regulations currently being tabled around the world. You can’t just batten down the hatches and wait for the storm to pass. It seems these executives are making the best of a difficult situation.”
Accordingly, 77 percent of the survey respondents say that cost and performance management are high priorities for the future. And, having invested heavily into new capacity during the upcycle, many metals and mining operations are now keenly searching for new growth opportunities to help absorb some of their spare production capacity – 71 percent say that growth will be a high or an extremely high priority over the next 2 years.
When asked what they will do to drive growth in today’s economy, respondents cite two main strategies: growing their existing market share and entering into new markets (29 percent equally).
In part, the survey suggests a pullback from previously ‘hot’ emerging markets; 33 percent of those metals organizations with existing investments in Africa say they will likely reduce their investments over the coming years. One-in-five of those currently operating in the ASEAN region also expect to pull back somewhat. Yet, at the same time, the survey shows that metals organizations are refocusing their investments into driving growth in their larger markets – China and the Americas in particular. Forty-six percent of metals organizations with existing investments in North America say they will ‘significantly’ increase investment in that market while 41 percent with investments in Central and South America (excluding Brazil) also anticipate significant investment increases over the next 2 years.
The primary driver behind their foreign investments is a desire to move closer to the customer and to gain access to new markets. However, the most prevalent reason behind foreign investment in the metals sector continues to be a desire to improve the overall cost structure. Almost all – 94 percent – of the respondents report that their non-domestic investments are driven (at least in part) by a desire to obtain lower manufacturing costs.
“Metals organizations are certainly thinking about how to create the optimal footprint to match their expectations for future growth, but they are also highly focused on consolidating operations into lower-cost jurisdictions that provide access to customers while helping manage margins,” notes Mr. Damotte. “Expect to see further asset restructuring as metals organizations start to execute on their investment strategies.”
The KPMG survey also shows that metals executives plan to channel significant investment towards developing and implementing new manufacturing technologies aimed at driving efficiency and improving performance. Just over a quarter of respondents say they have already invested into additive manufacturing and 3D printing, and 27 percent say they will definitely invest more in the future. One-in-six say they have already invested into AI and cognitive computing solutions; 32 percent say they will certainly invest more. However, the greatest focus for investment seems in robotics with 42 percent of respondents saying they will definitely invest in this area over the next 2 years.
“Metals organizations recognize that when the upcycle does return they will need to be much more agile and efficient in order to drive profitable growth. Cognitive computing, AI and Data and Analytics will be critical in helping metals organizations take advantage of new growth opportunities as they arise,” concludes Mr. Damotte.
This report is based on a survey of 62 senior metals sector executives conducted in early 2016 by Forbes Insights. Thirty-seven percent of respondents are based in the Americas and an equal number are based in Asia with the remainder located in Europe and the Middle East. Forty percent of our respondents represent companies with annual global revenues of more than US$5 billion and 5 percent represent organizations with revenues of more than US$25 billion.
To support the survey data, KPMG International conducted a series of interviews with KPMG’s leading mining professionals around the world who provide their experience, insights and forecasts for key mining segments to deliver an unprecedented view of the challenges and opportunities faced by today’s metal and mining organizations.
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The views and opinions expressed herein are the personal opinions of the interviewees and authors based on their personal experience working as Auditors in the industry and do not necessarily represent the views or opinions of KPMG International or any KPMG member firm.