OREANDA-NEWS. Deal activity in the global metals industry is soaring to new highs according to "Forging Ahead", the third annual report on global metals mergers and acquisitions by PricewaterhouseCoopers, reported the press-centre of  PricewaterhouseCoopers.

The collective value of deals which took place in 2006 was $77,4 billion, more than double the $34,9 billion of the previous year. The total number of 224 disclosed deals was slightly down on the 2005 total of 250 but the value of the top ten deals was $65,5 billion, a huge increase on the $19,4 billion of the previous year.

The key drivers of consolidation continue to be the need to improve financial strength, increase negotiating power with customers and suppliers and boost capacity utilisation. This consolidation looks set to continue for the foreseeable future as for example Arcelor Mittal has already announced plans to expand facilities in Ukraine, Central and South America and South Africa.

The steel sector once again accounted for most of the deal making with 166 transactions collectively worth $70,4 billion, whereas the 165 transactions that took place in 2005 were collectively worth only $27,4 billion. The mega-merger that created Arcelor Mittal, the world’s first 100m tonne a year (Mtpy) was responsible for the massive surge in value. At $46 billion, it single handedly accounted for 59% of the total value that was traded in 2006.

However, the top five steel producers still only account for less than 20% of the total steel market, a smaller percentage than their suppliers in the iron ore industry or customers in the automotive industry enjoy. India’s Tata Steel announcement that it would acquire the Anglo-Dutch Corus Group indicates that consolidation in the steel sector is far from over. Large steelmakers will continue to consolidate and expand both up and down stream to control a bigger share of the steel value chain.

In contrast the aluminium sector saw relatively few mergers and acquisitions. There were 33 deals with a total disclosed value of $4,6billion in 2006, a marginal increase on the $4,2 billion that was exchanged in 2005.

Jim Forbes, global metals leader, PricewaterhouseCoopers said:

“The global metals sector has now entered a new blockbuster deals era and there is also an interesting shift in where it is being played out. The established markets of the West have a far bigger role than before with the sum traded by companies based in Western Europe and North America increasing three fold while activity in the Asia-Pacific region has proved sluggish”.

There were 61 cross-continental deals collectively worth almost $14,2 billion, compared with 58 such deals collectively worth $12,7 billion in 2005. But regional transactions represented by far the bigger proportion of the value that was traded with 163 deals worth a total $63,2 billion - nearly three times the $22,1 billion that changed hands in 2005.

Western Europe
Western Europe led the way with 60 mergers and acquisitions worth a record $49,9 billion. The merger of Arcelor and Mittal Steel gave it a huge head start over North America, even though the total number of transactions in each region was the same. Deal making was down in the aluminium sector and was even quieter in other parts of the metals industry.

North America
There was a staggering 85% increase in year on year value in the North American metals industry. Sixty transactions collectively worth $15,5 billion compared with 68 transactions worth $8,4 billion in 2005. Nucor’s purchase of more than 96% of shares in the Canadian Harris Steel Group and its aim to acquire the remaining shares and take the company private, is a predictor of what is to come in the North American steel sector.

Central and Eastern Europe
Deal making in Central and Eastern Europe was down 33% on last year. There were 40 transactions worth only $8 billion, compared with $11,9 billion previously. As in earlier years, Russian steelmakers were much in evidence. The top manufacturers already control 85% of the country’s production capacity so are keen to expand their reach abroad.

Asia Pacific
There was also a substantial decrease in the Asia Pacific region. Fifty two deals with an aggregate value of $3,2 billion was 37% down on the 72 deals worth $4,4 billion in 2005. This stems partly from the lack of M&A activity in China where the latest Steel Industry Development Policy aims to promote domestic consolidation and curb foreign investment in the steel sector.

Central and South America
The Central and South American metals industry saw 12 deals jointly worth $851m in comparison to 13 deals worth almost $1,4 billion in 2005. Almost all the transactions involved steel makers.

A new addition to the report for this year is the inclusion of analysis of the major differences in the views of chief executives in the metals sector and other industry sectors, based on data drawn from PricewaterhouseCoopers 10th Annual Global CEO Survey. This has been supplemented with a discussion of some key industry concerns with Daniel DiMicco, chairman of Nucor and Michel Jacques, chief executive of Alcan Primary Metal Group.

Jim Forbes, global metals leader, PricewaterhouseCoopers added:

“We have also found that metals industry chief executives are much less confident about the prospects for revenue growth than those in other sectors. What is keeping metals executives awake at night is the impact changes in energy and commodity prices can have on their bottom line”.