Metals Industry Update - Q4 2018 - Amherst Partners
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Metals Industry Update – Q4 2018

Metals Industry Update – Q4 2018

Geopolitical tensions between the U.S. and its North American partners, combined with minimal progress on Chinese trade negotiations likely played a role in the tempered metals sector deal activity in 2018. The number of transactions in metals declined to 133 in 2018, down 1.5% from the prior year. Conversely, the sector witnessed aggregate improvement on a deal value basis, with $5.0 billion of M&A deal value in 2018 compared to $1.0 billion in 2017.

Within the metals industry, steel continued to experience price increases driven by tariffs, higher oil prices, and supply chain disruptions. This was intensified by strong demand as steel shipments grew robustly, outpacing real GDP growth. Demand for steel from the automotive industry slowed, while the energy sector’s demand for the metal experienced significant growth. Capacity utilization for U.S. steel producers rose to above 80% – its highest levels since 2014. Growing demand and rising steel prices continued to drive the consolidation trend with interest from both strategic and private equity buyers. Strategic buyers accounted for the bulk of deal activity and have actively invested to increase their production capacity.

On the geopolitical front, while we saw some progress on tariffs between U.S. and China during the G20 summit and Beijing meetings, failure to reach a deal by March 1, 2019 would result in a tariff increase from 10% to 25% on $200 billion worth of Chinese imports and would further introduce uncertainty into the metals market. Signing of the United States-Mexico-Canada Agreement (USMCA) in November 2018 should ease trade tensions between the North American
trade partners. Despite the complex ratification and approval process ahead for the USMCA, the shift in tone between the three countries should bring relief to metals producers and downstream manufacturers and may lead to new opportunities for consolidation moving into 2019.

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