India gears to become the 2nd largest producer of steel by 2015 from the current position of 5th, says a PwC report

For India to attain its double digit GDP growth, major policy changes are expected relating to metals and mining industry (keeping in mind Environmental issues) to boost the domestic metal production and utilisation of natural resources to support the projected infrastructure spend of Rs 500 billion in next five years.
Indian Mining Companies are realising that value addition and metal making is there to stay, so have joined the band wagon and are search of capital to fund metal producing plants
Indian multinationals have been buying out major global metals companies to have their global footprints and be among the biggest global metal companies

Metals deal activity is bouncing back strongly and momentum will remain upward in the year ahead, according to ‘Forging Ahead’, PwC’s annual review of M&A activity in the metals sector. The value of international metals deals has broken away from the lows reached in the economic downturn and is now on its way back to the level recorded at the end of the 2006-08 M&A boom.

The report highlights:

A threefold increase in international cross-border deals, which are up 46% year on year.
A $US14.3bn total by the end of 2010 compared with a low of US$4.4bn in 2009.
PwC anticipates that current and future deal flow will keep these totals on course to move back towards the US$38bn recorded at the end of the 2006-08 M&A boom.
Total metals sector M&A is also moving up strongly – up 79% to US$27bn from £15.1bn the year before.

The marked increase in international deals is being led by moves to secure raw materials supply – two of the top three metals deals completed in 2010 were for iron ore resources - and to gain a greater presence in fast growth markets.

Tapan Ray, Leader – Metals, PwC India said:

“India with economic growth around nine percent year-on-year continues to be a large market domestically and remains relatively less affected by the global financial crisis. As a result, we are seeing predictable capacity expansions in the sector. Unlike the past, sector today isn’t reliant on the developed export markets, as new avenues in the Latin Americas and Africa have opened up internationally, coupled with the buoyant domestic demand.

With this scenario, the all- important issue of raw material security, gains added significance..
And with capacity building, there are inescapable questions of environmental and forest clearances, availability of land in Greenfield expansions, access to best-in-class technology and most importantly, availability of right manpower and skill sets.”

In a rebuttal of common perceptions of international deal-making, it is the developed market firms rather than Chinese companies that are making the moves. Japanese, North American, Western European and Australian buyers, along with Brazil’s Vale, all accounted for more international metals deal value than their Chinese counterparts (see notes for editors). Chinese companies remain largely focused on consolidation of their highly fragmented domestic metals sector.

Africa is also beginning to feature predominantly in the metals deal market, and is expected to play a significant role in the year ahead. The flurry of activity to secure African mineral resources was evidenced by Vale’s US$2.5bn purchase of a 51% interest in BSG Resources (Guinea).

The report also features an exclusive interview with Koushik Chatterjee, Group Chief Financial Officer of Tata Steel. On deal-making in the sector, Koushik said:

“The steel sector certainly has some distance to go in terms of consolidation. Sector consolidation has been slower than the pace at which suppliers or customers of the steel industry have consolidated. Following the global financial crisis, it would certainly be more meaningful to consolidate the sector further to leverage pricing power away from the suppliers to the industry. However, the logic of consolidation may be different depending on each company’s circumstances and it is important to build the strategic rationale for the M&A early to avoid post-integration synergy traps.

On the way ahead, Koushik added:

“In a capital-starved world, it is not always necessary to undertake full-blown acquisitions. Companies can build partnerships with acceptable equity relationships and yet leverage common priorities on markets, technology and competitiveness. This requires a mature mindset which needs to evolve over time. Collaborating to compete is often a more meaningful use of capital in the long run. After the global financial crisis, chasing control through equity ownership will not always guarantee economic success.”

ENDS

Note to Editors
Of a total of US$14.3bn of cross-border, international metals deals completed in 2010: Japanese buyers generated US$4bn worth of activity; Brazilian - US$2.5bn; Western European - US$1.4bn; North American - US$1.3bn; Australian - US$1.2bn; and Chinese buyers - US$1.1bn. South Korean bidders, with US$0.7bn, were the other significant international buyers.

For more information. methodology or to read the full Forging Ahead Metals deals report, visit: http://www.pwc.com/gx/en/metals/mergers-acquisitions/2010-mergers-acquisitions-analysis-annual-review.jhtml

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