According to a GE Capital report, slowing growth in China, weak growth in several other emerging markets, and some negative numbers out of Europe and Japan have pressured global commodities/metals demand and pricing. A strengthening U.S. dollar has also been and is expected to remain a headwind. Global GDP is only expected to see only a modest pick-up in 2015-2016.
Key trends to track include the following:
Steel dynamics tend to be more regional in nature, with U.S. steel demand and pricing benefitting from improving end market consumption and an increasingly consolidated supply base. However, global steel supply is excessive, and rising U.S. steel import supply remains a threat (possibly to be countered by more trade case filings). Precious metals prices appear likely to remain under pressure, given continued deflationary forces and a strengthening U.S. dollar.
The North America metals industry will see continued active “above ground” cap-ex activity. Drivers include continued electric furnace and metals processing investments lifted by cheap natural gas (and related infrastructure growth), reshoring of manufacturing, increasing aluminum consumption in the automotive industry, growing aerospace demand, and a recovery in non-residential investment.
Mill producer M&A will likely slow due to concentration issues, though cross-border investment could remain active. However, the service center, processing and fabrication areas remain generally fragmented and should remain active on the M&A front. The scrap industry is also very fragmented and will likely be an area of increasing deal flow potential on the lending side.
Metals miners will continue to focus more on improving existing asset efficiency and shareholder-friendly activity. M&A activity is likely to reflect divestures that allow miners to focus more on core assets, with private equity possibly stepping up from otherwise rather dormant activity in the space.
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