Metals and Mining: Steel Consolidates, Aluminum Competition, Environment and Blood Diamonds Concerns
METALS AND MINING INDUSTRY ABSTRACT
July 2008
Many societal issues and trends affect the M&M industry. Gold has lost much demand over the past two decades due to floundering inflation and the falloff in gold use as an investment from both the private and official sectors. However, with a recent resurgence of inflation, fabricator demand on the rise, and possible production slowdowns in the highest producing countries could result in sustained higher gold prices. Rebel groups and unscrupulous governments in Africa have used blood diamonds to finance brutal wars and line the pockets of those involved. The connection to money laundering for terrorist groups such as al Qaeda has made this a global issue since September 11, 2001. Sanctions and the KPCS have been put in place around the globe to combat this issue, but this has a direct impact on clean diamonds as well. Diamond industry players also see future threats from mass-produced man-made diamonds. After years of sub-par results, the U.S. steel industry entered a period of severe crisis a few years back. This prompted the PBGC to take on a limited amount of legacy costs in conjunction with acquisitions and bankruptcy, which began an avalanche of acquisitions leading to consolidation of the U.S. industry. Lower cost structures emerged from reduced legacy costs, less debt, economies of scale and union concessions, but they still remain higher cost-structures than mini-mills. This is expected to pressure smaller integrated mills to be acquired due to their higher cost structure. Furthermore, non-U.S. integrated steel companies are expected to acquire U.S. firms, as the steel industry both within and outside the U.S. becomes more multinational with global giants like ArcelorMittal. Large North American integrated aluminum companies have remained dominant forces in the global market due to the cost benefits of recycling aluminum, the lack of mini-mill technology to compete effectively, global perspectives of these companies, and their ability to create high-margin value-added products. But new global competition is emerging from China, potentially flooding the aluminum market and dampening prices. Environmental regulations are substantial in the U.S. for the M&M industry, and are only expected to become stricter. This is particularly true for areas less heavily regulated, such as gold mining, as Western urban areas continue to mushroom and encroach on mining areas. Companies in this industry must proactively follow environmental regulations through active compliance programs or face severe penalties. Communicating with stakeholders and lobbying for reasonable regulations are paramount to the survival and success of players in the industry.
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