London, 2 February 2012

M&A to increase in metals industry as volatility in commodity prices here to stay, says KPMG: Almost one-third of metals companies expect to expand through mergers and acquisitions (M&A) over the next two years – mainly to gain control of raw materials – according to KPMG’s Global Metals Outlook: Manufacturing Resilience.

The greatest concern for the metals industry is managing input costs of raw materials, more than half (51%) of metals companies see price volatility for key input costs as one of the biggest challenges over the next two years.

Graham Smith, UK head of automotive and diversified industrial markets at KPMG, said: “We have seen huge price volatility over the past decade and keeping operational costs lean will become a hallmark of the metals industry in years to come. Upstream* acquisitions will become more common as one way of gaining control over input costs or securing access to important raw materials for metals manufacturers. For example, key players in aluminium have acquired upstream assets in recent years which have made them virtually 100% self-sufficient in alumina and bauxite.”

Over a third (36%) of global metals companies intend to increase the use of near-shore suppliers for the coming years. Companies are looking to locate assets closer to customers or suppliers – more than one-half (53%) of respondents from metals companies say their organisations are considering localising or customising operations to improve the efficiency of their supply chain.

Graham said: “Given the size and bulk of their products, shipping costs are a major concern. We compete on a global basis and we really look to be where our customers in key industries are all over the world.”

Other findings:

- Cost optimisation is expected to be a top priority in the coming years for nearly seven in ten (68%) metals producers

- Almost half (49%) of metals companies are expected to invest more in cost management followed by expansion of production capacity in high-growth markets (36%).

Ends --

This paper delves explicitly into the responses from 47 metal-industry executives.

Attachments:

KPMG_Metals_Outlook_final_web.pdf

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