A new report by Deloitte Touche Tohmatsu, a global consulting and financial advisor, called Turning the corner: Global metals outlook, argues that radical cost restructuring is vital to industry recovery and, as a result, leaner businesses will emerge. The report offers opinions on the impact of the economic downturn on the global metals industry and what to expect down the road. “It is almost as if you can’t find customers anymore-they have become phantoms,” commented Nicholas Sowar, Global Steel Leader with Deloitte’s Global Manufacturing Industry Group. “It’s not surprising that so many companies are taking thousands of people out of their global workforce and being forced to restructure and divest some non-core assets.”
Whether the current downturn for the metals industry is a short-term crisis or a fundamental retrenching of the market remains unclear, but there have been significant implications for companies as they try to respond. The closing of production facilities, the panel points out, may not be temporary. “I think there is a basic disagreement or uncertainty over exactly what we’re in here in terms of this crisis,” says Richard McLaughlin, a Steel Specialist with Deloitte Consulting LLP, United States. “I’ve been doing an analysis for a client and the business plan they are putting forward suggests that they think this is a very short-term and modest dip in overall activity. Then again, you may be looking at a permanent reduction in the production of metal-containing goods.”
Deloitte says however that “the news may not be all bad for the global metals industry. The current pull-back in production has reduced inventory, indicating there could be a strong comeback in terms of demand when the economy does pick up again. And industry consolidation may mean fewer players and decreased competition. The chance to buy bargain assets also presents an opportunity for those companies with strong balance sheets.”
“For some companies, it is fairly clear to me that they are going to make some acquisitions,” says Claude Martin, Global Process Sector Leader for Deloitte’s Global Manufacturing Industry Group. “They need more critical mass. They’ve got cash. So clearly they’ll be looking for bargains.”
The panel, made up of Sowar, McLaughlin and Martin, sees opportunity in the stimulus plans being proposed by many governments around the world. In particular, China’s large infrastructure package could potentially jump-start global demand. “If an infrastructure spending bill in China basically affects 60% of its economy,” points out McLaughlin, “then that will have a huge positive impact in absorbing more raw materials and finished metals.”
Overall, to address the current downturn and prepare for an eventual turnaround, the panel viewed a need for companies to reduce fixed costs, consider restructuring, and rethink their current business model. “Even for healthy companies,” says Martin, “take the opportunity now to drive out some of those structural costs that you’ve been burdened with.” www.deloitte.com/manufacturing
