"While most metals organizations seem to believe they will grow their market share, the reality is that – without significant structural consolidation across the industry – they will need to steal it away from their competitors," – Eric Damotte, Global Head of Metals, KPMG International
Many metals and mining organizations are already fighting off fierce competition from lower-cost imports in their home markets and reduced demand from the emerging markets. And with growth in the global economy expected to remain slow, metals and mining organizations are increasingly focused on growing their existing markets and product lines.
"With China continuing to struggle with massive overcapacity, particularly in the steel sector, we expect investments to focus largely on shifting manufacturing operations towards higher-quality products to respond to China’s own shift towards value-added manufacturing," notes Eric Damotte. "China may make tons of steel, but very little of it is currently at the quality required by – for example – China’s growing automotive industry."
Indeed, our data indicates 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 over the next 2 years while 57 percent of respondents with investments in China also say they will grow their investments significantly.
While mining organizations are not able to shift their locations or their seams of ore, our experience suggests that miners are increasingly looking further afield for acquisitions that might improve their efficiency or diversity. "We will certainly see some M&A in the sector over the coming years, particularly in certain geographies where miners are looking to build scale," notes Sharman. "However, there continues to be a significant bid/ask price gap as potential purchasers look to take advantage of the low price environment to negotiate for lower valuations."
Metals and mining 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 and reflect evolving trade barriers while also helping manage margins. As such, we expect to see further asset restructuring as metals organizations start to execute on their investment strategies.
How are leading metals organizations responding?
How are leading mining organizations responding?
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.