With Q4 2014 results in for the mining sector, industry focus can shift to what lies ahead in 2015. PwC recently released a report, “Metals Deals: Forging Ahead 2015 outlook and 2014 review” (the PwC Report) which includes a look back at the metals deal statistics in 2014 and provides some insight into what we can expect to see in 2015 in the global metals sector.

Unsurprisingly, the 2014 metals deal analysis was discouraging, with global deal value dropping 52%, from US$34.8bn in 2013 to US$16.8bn in 2014. To put this figure further into perspective, the PwC Report states that 2014’s total deal value was less than half of the deal value recorded in seven of the last eleven years. On a more positive note, 2014 deal volume dropped by just 6% in 2014 as compared to 2013.

The PwC Report indicates that the drop in metals deal activity was most evident in the Asia Pacific region, South America and central and eastern Europe. Western Europe and North America however saw their share of deal activity increase to 80% in 2014. The U.S. had a particularly strong showing with six of the top ten largest metals sector deals completed in 2014 involving U.S. buyers.

Looking to the year ahead, the PwC Report predicts that deal activity in 2015 will remain sluggish, largely due to two prevailing factors: the slump in the growth of global demand for steel, and the declining price of oil. While demand for steel in China is waning, it will be picking up in India, with growth forecasted to be 6% in 2015, as compared to 1.8% in 2013. The other main factor affecting the 2014 outlook is the decline of oil prices. The PwC Report states that the low oil prices may have a complex effect on the metals sector. On the one hand, it may benefit metals companies in the automotive industry and non-oil infrastructure industry. On the other hand, metals companies involved with pipeline or other oil infrastructure and companies supplying steel for large infrastructure projects will likely feel the pain of the drop in prices.

In addition to overall weak M&A deal activity, the PwC Report predicts other trends for 2015. First, due to the various uncertainties currently affecting the economy, including low oil prices, concerns of Chinese growth, and possible eurozone recession, it is expected that metals deal makers will hold off on making any moves until the market outlook is more stable. Additionally, the PwC Report anticipates that with such uncertainty, metals companies will also be hesitant to embark on full M&A combinations, and instead will increasingly use alternative deal structures, including partnerships or alliances. The PwC Report also forecasts that country- and region-specific factors will play a larger role in metals deal activity as compared to global factors. On a metal-specific level, it is expected that aluminum will see a 7% rise in global demand, while demand for steel is expected to increase only 2%. Other possible trends include falling commodities prices and currency fluctuations affecting deal activity, a focus on balancing resource portfolios, pressure on the steel sector due to flat Chinese demand, and potential deal activity in Russia.

Stay informed on M&A developments and subscribe to our blog today.