The global metals industry has been divided in terms of performance this quarter: While aluminum prices reached their highest prices in close to six years, iron ore has entered a bear market after facing price volatility throughout the first half of 2017. Companies continue to be wary of investing in high-cost projects under the current unstable environment.
There were 16 deals announced in Q3 2017, with a total value of $5.4 billion. The Asia and Oceania region continues to drive M&A activity, as China’s supply-side reform program to reduce steel and aluminum overcapacity has led to restructuring, impacting demand and pricing. At the same time, Chinese demand has diversified into other industries as it reduces its dependency on national infrastructure. If commodity prices continue to rise under a low supply/high demand setting, we expect M&A activity to improve, which has steadily declined during the past year. US import restrictions could also come into effect under the current administration, further affecting production and demand.
Industry players will continue to focus on organic growth while commodity pricing remains volatile. However, as the global metals market continues to evolve, industry restructuring is expected in the future.
“While deal volume in the quarter was still largely driven by Asia and Oceania deals, deal value increased in other regions as a percentage of total activity, due to megadeals outside of China. If commodity prices continue to recover, metals assets outside of Asia and Oceania should become more attractive to potential investors.”