Metals mergers and acquisitions (M&A) activity may remain stagnant until the angst caused by the global trade climate has subsided, according to PricewaterhouseCoopers (PwC).
Global metals M&A deals were down -51% on-quarter in the second quarter to $8.1 billion, although this was up 69% on-year. Deal value in the first half of 2018 was nevertheless up 72% on-year. Deal volume was down -40% on-quarter to 117, but flat on-year in H1, PwC says in its latest global metals M&A deals report.
The largest Q2 deal occurred in April when Baotou Iron & Steel Group, China’s largest steelmaker, announced an acquisition of Inner Mongolia’s Baotou Steel Union for $1.6 billion. The Asia and Oceania region continues to see the majority of the sector’s deal volume and value.
The only megadeal announced to date in 2018 was Tata Steel subsidiary Bamnipal Steel’s $5.2 billion acquisition of Bhushan Steel.
Second-quarter deal values in the steel and aluminium categories were -38% and -90% lower on-quarter respectively. Deal values in the iron ore and other metals categories were higher from last quarter, helping offset this decline.
In March the US Congress passed a new $1.3 trillion spending package, allocating $21.2 billion for infrastructure spending, to fund transportation, energy, water, and other projects. This, coupled with the recent US tax reform, was expected to stimulate growth in the sector, which in turn would have a positive impact on deals.
US steel and aluminium tariffs have led to increased domestic demand and metals prices. “While US aluminium and steel manufacturers are enjoying expanding demand and higher prices, downstream consumer businesses are seeing diminishing margins and lacking capacity to grow; pointing to higher input costs and the need to increase prices to consumers,” PwC says.
Deal makers targeting the US industry players on the back of rising economic growth, stock market gains, tax reform increasing valuations, and a new infrastructure bill may go on standby until the global trade disputes stabilise, according to PwC.
“Until the results of these geopolitical trade relations become more clear, cross-border deal activity and overall deal value in the Metals sector may continue at below recent historical average levels; despite steadily increasing global demand and other economic stimulus,” PwC concludes in the report seen by Kallanish.