Articles in Category: M&A Activity

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Before we head into the weekend, let’s take a look back at the week that was with some of the stories here on MetalMiner:

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  • Sohrab Darabshaw covered India’s view of the Regional Comprehensive Economic Partnership (RCEP).
  • The oil price has plunged — MetalMiner’s Stuart Burns looked into the reasons why.
  • October global crude steel production jumped 5.8% year over year, according to data in a recent World Steel Association report.
  • A recent Section 301 report by the United States Trade Representative on China’s trade practices painted a familiar picture.
  • Through the first 10 months of the year, steel imports were down 11% compared with the first 10 months of 2017.
  • There is talk of a potential merger between two Chinese steelmakers whose combined annual capacity would exceed that of the U.S. as a whole.
  • Housing starts in October were up from the previous month.
  • General Motors’ announcement this week of plant closures and a 15% workforce reduction could be a sign of cost-saving measures to come for other automotive brands.
  • Several CEOs spoke earlier this week during a panel discussion event in Washington, D.C., focusing primarily on the impact of the U.S.’s steel and aluminum tariffs.
  • Lastly, in case you missed the news earlier today, the U.S., Canada and Mexico signed the United States-Mexico-Canada Agreement during the G20 summit in Buenos Aires (the trade deal still needs to be ratified by each country’s legislature).

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Not before time, China’s steel industry is making some progress towards consolidation.

Although both sides deny talks are taking place, a Reuters article details information received from various sources that suggests state-owned China Baowu Steel Group is in talks to take over rival local Anhui province government-controlled Magang Group.

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The two mills are geographically close to each other, with Magang headquartered in Maanshan city in China’s eastern Anhui province, about a four-hour drive from Shanghai, where Baowu Group is based, the article states.

From a product perspective, the two companies are broadly complementary.

Baowu mainly churns out flat steel products, while Magang’s output is split between flat and long steel products used in construction. There may be some consolidation as a result of the merger, but Baowu’s corporate strategy is to reach 100 million tons of capacity by 2021 from its current 70 million tons, so closing capacity is probably not the primary driver.

Reuters reports that in 2017 Baowu produced 65.39 million tons of steel, while Magang produced 19.71 million tons. Their combined output of 85.1 million tons would be just 11.9 million tons below ArcelorMittal’s production last year and ahead of the U.S. total of 81.6 million tons.

Source: Reuters

The combined group, though, would be a potential rival to ArcelorMittal only in tonnage terms. Globally, the firms are poorly represented, with most of Magang’s production consumed domestically and Baowu exporting just 3.8 million tons from its Baoshan Iron and Steel division last year.

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The merger fits with Beijing’s strategic objective of putting 60% of its national steel capacity in the hands of its top 10 (mostly state) producers by 2020, up from a third presently.

Expect a lot more mergers over the next couple of years as Beijing seeks to curtail capacity form the current 1.1 billion tons to some 980 million tons by 2020.

Before we head into the weekend, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner:

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MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

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This morning in metals news, Chilean state copper agency Cochilco again trimmed its average copper price prediction for the year, China’s state-owned aluminum producer Chinalco is looking abroad and oil prices are up for the second straight day.

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Copper Price Prediction Falls

Chile’s state copper agency, Cochilco, lowered its average copper price prediction for the year, Reuters reported.

According to the report, it downgraded its prediction by $0.03 to $2.97/pound.

Chinalco Looks Abroad

Amid challenges at home, the state-run aluminum major Chinalco is looking elsewhere to buttress its business.

According to a Bloomberg report, the global aluminum market is set to swing from a deficit to a surplus in 2019, which will put pressure on the aluminum producer (in tandem with rising prices of raw materials).

Bloomberg cites Chinalco’s deputy general, Ao Hong, who said the firm is looking into an Indonesian alumina project.

Oil Prices Rise Again

The oil price made gains for the second straight day Thursday, Reuters reported.

After exceeding the $80/bbl mark in September — its highest level since 2014 — the price has come off in the last six weeks.

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According to the report, OPEC is considering a cut of up to 1.4 million barrels per day next year to head off a further plunge in the price.

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PwC last week released a report on Q3 merger and acquisition (M&A) activity, showing an uptick in momentum despite the trade headwinds that continue to swirl around the world (namely, between the U.S. and China).

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The total value of M&A deals in Q3 jumped 78% compared with Q2, according to the report.

“Despite headwinds caused by global trade tension and increasing interest rates, cash-rich corporations with strategic rationales are likely to drive deal activity for the rest of 2018 and into 2019,” said Brian Kelly, PwC’s U.S. metals deals leader.

Among the aforementioned trade-related headwinds includes, of course, the U.S. tariffs on steel and aluminum.

“While the ongoing tariff disputes led to margin pressure for smaller producers of steel and aluminum and downstream manufacturers, it is expected to open up opportunities for strategic investors who are looking to consolidate and stay competitive,” the report states. “The US maintained its stance on increased metal tariffs despite proposing USMCA (a revamped version of NAFTA) and allowing US companies to petition for exemptions from tariffs where highly specialized metal imports (which cannot be produced domestically) are required in products.

“This is likely to shape North American deal activity in Q4 2018 and 2019.”

The quarter featured one megadeal (i.e., a deal with a disclosed value of $5 billion or more), that being the $6.1 billion purchase of Randgold Resources Ltd. by Barrick Gold Corp. 

Total deal volume fell 9% compared to Q2 2018 and by 27% compared with Q3 2017, but deal value jumped 78% compared with Q2 2018 and by 179% compared with Q3 2017.

Broken down by metals sector, the value of steel and aluminum deals in Q3 fell by 22% and 81%, respectively, compared with Q2. Total deal value hit $16.1 billion for the quarter, with an average deal size of $223.2 million.

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Read the full PwC report on metals sector M&A activity in Q3 here.

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This morning in metals news, Brazilian authorities are questioning Norsk Hydro over its decision to halt operations at its Alunorte alumina refinery, the ThyssenkruppTata Steel merger could be subject to merger control regulation and BHP says China’s Belt and Road Initiative could lead to a surge in copper demand.

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Para Surprised by Hydro Decision

According to a Reuters report, the Brazilian state of Para was surprised by Norsk Hydro’s recent move to shut down operations at its Alunorte alumina refinery.

Following the move, aluminum prices have skyrocketed this week (alumina is one of the materials used to produce aluminum). On Wednesday, aluminum prices jumped 2% to its highest level in more than a month.

BHP Says China’s Belt and Road Could Boost Copper Demand

Miner BHP said China’s Belt and Road Initiative could provide a boost of 7% of annual demand to copper, Reuters reported.

According to BHP’s analysis, the initiative represented one-third of the global economy and would yield $1.3 trillion in spending over the decade to 2023.

Merger Control Regulation Could be Coming for Tata-Thyssenkrupp

According to the Economic Times, the European Commission’s Official Journal notes the merger of the European operations of Thyssenkrupp and Tata Steel could be due for merger control regulation.

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The merged operation would become the second-largest steel entity in Europe, behind only ArcelorMittal, should it become official.

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This morning in metals, Shell’s chief executive says $80 oil is good for energy infrastructure investment, China’s Baowu is reportedly in talks to acquire a rival and base metals prices dropped on Tuesday.

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$80 Oil? Shell CEO Says It’s Not Unreasonable

In a CNBC interview, Shell CEO Ben van Beurden said $80 oil would not be unreasonable and would support energy infrastructure investment.

Van Beurden added some of the Trump administration’s quotas on steel imports have impacted the company’s construction projects.

MetalMiner’s Take: Shell is probably right in estimating the world can afford $80/barrel oil prices without harming growth; certainly, the U.S. economy is testament to that at the moment.

But rising steel costs due to import tariffs are causing oil companies headaches when funding new infrastructure projects, projects the industry desperately needs to overcome transportation bottlenecks and meet rising refined product demand overseas.

Outside of the U.S., oil majors are pushing ahead with large investments in a buoyant refining market. Exxon just announced a half-billion-dollar upgrade to its giant Fawley refinery in the U.K. to meet rising demand, surely a sign the oil price and demand trump construction costs.

Baowu Eyeing Rival Firm

According to a Reuters report, the Chinese steelmaking heavyweight China Baowu Steel Group is in talks to acquire rival Magang Group.

Per the report, the combined output of Baowu and Magang last year surpassed total U.S. production.

Metals Prices Drop

Base metal prices struggled on Tuesday, according to a Reuters report, on the heels of a one-day closure of Chinese markets.

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After surging Friday, LME copper dropped 0.8% on Tuesday.

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Before we head into the weekend, let’s take a look back at the week that was with some of the stories here on MetalMiner:

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MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

It has been a long, tortuous road, but finally ArcelorMittal’s reported €2 billion purchase of Italy’s Ilva steel plant looks like it is nearing completion.

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The deal was largely contingent, according to a European Commission Press release, on an agreement between unions and the buyer over future employment at the plant.

Early and vocal opposition from unions was all around staffing levels with both rival bids. India’s JSW was the rival bidder at the time, indicating significant job cuts in order to address one of Ilva’s three key challenges.

According to union officials reported in the local press at the time, the Mittal-led consortium wanted to reduce staff numbers from 14,200 in 2016-2017 to 8,400 by 2023, while the rival bid would cut head count to 7,800 over the first year but then bring it back up to 10,300 by 2023.

The final deal agreed this month and announced on the company’s website states ArcelorMittal has committed to initially hire 10,700 workers based on its existing contractual terms of employment. In addition, between 2023 and 2025, ArcelorMittal has committed to hire any workers who remain under Ilva’s extraordinary administration (essentially, its nationalized current operating position).

Challenges Facing Ilva

Ilva faces three main challenges.

The first has been decades-long environmental breaches resulting in reported raised incidences of cancers and respiratory diseases in the area.

The second is probably a contributing factor to the first: endemic losses caused by uncompetitive staffing levels, overseas competition and underinvestment.

The third is the fact that Ilva is located in an area of high unemployment with scant opportunities for workers to find alternatives. If Ilva were to be closed, the impact on the region’s economy would be devastating. Yet, the plant requires massive investment to cut the environmental pollution and to improve efficiency if it is to have a future. ArcelorMittal has committed to invest some€4 billion, with €1.1 billion of the investment to go toward environmental cleanup, while €1.2 billion will go into production improvements.

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As Europe’s largest steel plant and, as such, a strategic source of employment in a depressed area, it was unlikely the plant would be allowed to close by the Italian government. A takeover was inevitable at some stage, but the buyer was always going to need deep pockets.

ArcelorMittal will make a better steward than many others and, at least, ensures a future for the plant.

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Before we head into the weekend, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner®:

Need buying strategies for steel? Try two free months of MetalMiner’s Outlook

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel