According to a recent PwC report, mergers and acquisitions (M&A) activity in the metals sector slowed in Q2 2018, in tandem with an escalation in global trade tensions.
“Deal activity, particularly crossborder, may remain stagnant until the angst caused by the global trade climate has subsided.” said Brian Kelly, US Metals Deals Leader for PwC.
The value of M&A activity in Q2 ($8.1 billion) fell 51% compared to Q1. Total deal volume (117) in Q2 also dropped, falling 40% compared to the previous quarter. In addition, average deal size ($136 million) was down 30%.
However, in the year to date (i.e. January-June), total deal value was up 72% compared with the same period in 2017. Total deal volume was up slightly (1%), while average deal size was up 4%.
The Asia and Oceania region saw the majority of metals sector M&A activity, according to the report. Among that activity included Baotou Iron & Steel Group, China’s largest steelmaker, announcing the acquisition of Inner Mongolia’s Baotou Steel Union for $1.6 billion.
“The region accounted for 76% of target value and 84% of acquirer value in the sector this quarter,” the report states of Asia and Oceania. “Similar to the previous quarter, China remains the global leader in steel and aluminum manufacturing. While it is expected that the imposed tariffs on foreign imports will increase local valuations, certain risks remain as economic growth expectations stagnate due to increased trade risks.”
In particular, deals in the steel and aluminum categories suffered. This spring the U.S. imposed tariffs of 25% and 10% on steel and aluminum, respectively, with a select few countries managing to negotiate quotas (South Korea, Argentina and Brazil).
“Deal values in the Steel and Aluminum categories are 38% and 90% lower than last quarter, respectively,” the report stated. “Deal values in the Iron Ore and Other Metals categories were higher from last quarter helping offset this decline. Deal volumes were significantly lower in all categories.”
For now, a recovery in deal activity waits, in part, on some sort of resolution to the rise in global trade tensions.
“Until the results of these geopolitical trade relations become more clear, cross-border deal activity and overall deal value in the Metals sector may continue at below recent historical average levels; despite steadily increasing global demand and other economic stimulus,” the report explains.