Metals

Recession in the US or a slowdown in China would hit metals companies hard

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84%

of metals CEOs say recession in the US would have a negative impact on their business.

A bleak outlook for 2013

Metals CEOs are much less optimistic than their peers in other sectors. Only 14% are very confident of revenue growth over the next twelve months. Although a third are more optimistic looking out over three years, they’re still lagging far behind the sample as a whole. As a cyclical industry, metals companies get hard hit by economic downturns. That may be why significantly more metals CEOs believe that a break-up of the Eurozone, US recession or slowdown in growth in China will hurt their prospects. And other business threats like exchange rate volatility are worrisome too.

Keeping a tight rein on costs
To cope with the gloomy outlook metals CEOs are working hard to make their companies more efficient. More than half say that improving operational effectiveness is their top investment priority over the next 12 months. They’re continuing to cut the fat, with 79% of metals CEOs reporting that their company implemented a cost reduction initiative in the past 12 months. More metals CEOs cut their staff numbers last year, and more cuts look likely. Some of them will be deep – 14% of metals CEOs say their companies will decrease headcount by more than 8% in the coming 12 months.

But still investing where needed
More metals CEOs are planning to increase capital investment levels this year. In addition to operational effectiveness, other top investment priorities for the next 12 months are growing the customer base, manufacturing capacity, and deals. When it comes to the latter, CEOs aren’t sticking to the status quo. 72% say there will be changes at their company over the next 12 months with regards to a M&A, joint venture or strategic alliance.

Looking farther out, 60% of metals CEOs plan to increase their investments in creating and fostering their skilled workforces. Keeping those employees healthy will be a priority for 45% of them.

Facing the resource crunch
Compared to peers across the overall sample, more metals CEOs also plan to increase investments over the next three years in order to secure natural resources that are critical to business. Metals is an energy intensive industry, and 44% of CEOs are ‘extremely concerned’ about energy and raw material costs – far more than the overall average of 14%. Some metals CEOs would like to see support from the government. 44% believe securing natural resources that are critical to business should be one of the government’s top 3 priorities.

And working together with supply chain partners
86% of metals CEOs say that supply chain partners are influencing their business strategy; that’s more than across the overall sample. Of those CEOs, most also plan to increase their efforts to engage across the value chain. And 58% of metals CEOs say they’re diversifying their supply chain and working with more partners across geographies. That should help offset the impact of possible supply chain disruptions. They’re still a worry for about a third of metals CEOs, though.

Stepping up to the plate on sustainability
Fewer metals CEOs think that reducing poverty and inequality should be a main priority for governments, compared to the overall sample. But more (nearly half) of metals CEOs do plan to increase their own company’s focus on philanthropy or social enterprise initiatives over the next 12 months (47% vs. 35%).

And even more metals CEOs–nearly two-thirds – are planning to step up efforts to reduce their organisation’s environmental footprint this year. That continues a sustainability trend that we’ve noted in previous years.

 
These interviews contain the opinions and views of the CEOs interviewed, and do not necessarily represent the opinions and views of PwC.

 
 

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