The
price for nearly all metals has risen steeply
over the past few years, causing pain for
buyers of commodities from steel to copper
to titanium. The continued merger activity
among producers may put even more pressure
on prices, as the combined companies can
more easily limit supply.
There
have already been a number of mergers in
the sector over the past few years, and
now aluminum giant Alcoa announced Monday
its intent to acquire Canadian rival Alcan.
Interestingly, Alcoa had been forced to
split off Alcan in 1950 over U.S.
antitrust concerns.
The
deal will again raise significant review
by anti-trust regulators and could well
be blocked. But many mergers have already
gone through across the globe, as metal
producers seek to acquire shrinking pool
assets before competitors do. Meanwhile,
China
is investing heavily to lock up commodity
supplies, and Western companies are often
signing very long term contracts. Some companies
have even made moves to a more vertically
integrated supply chain to better control
commodity supplies and prices (See Supply
Management: The Return of Vertical Integration?).
Whatever
happens to the Alcoa bid for Alcan, proposed
and actual deals are likely to continue.
There were also strong rumors this week,
for example, that global giant Mittal Steel
would look to acquire U.S.-based AK Steel.
Commodity
prices are famously volatile, and some believed
that after a big run since 2004 increased
supply coming on line would drive prices
of metals back towards more historic levels.
But the voracious demand from the surging
economies of China
and India
make it tough for even growing supplies
to keep up with global market demand, and
many think these mergers will put even more
of the balance in the producers’ favor
by enabling them to better control supply.
Additionally,
cash spent to buy rival mines and production
assets is money that can’t be spent
on developing truly incremental capacity. |