gopalakrishna

The last two years have been good for metals: Steel industry output exceeded the billion-tonne mark in 2004 and though the expansion rate is expected to slow down, analysts believe that global crude steel production will easily exceed 1.1 billion tones in 2005, primarily due to Chinese output. But the future outlook for steel prices remains mixed. Clearly, steel companies will have to operate in a different cost environment: significant increases in raw materials prices and energy supplies will result in substantial cost increases.

Aluminum and alumina prices were also on the rise in line with the upturn in the construction industry, commercial vehicles, and aerospace. However, metals is a cyclical industry and much of the current boom has been driven by Asian demand. Sooner or later the industry will experience a down cycle and then, once again, there will be renewed focus on traditional issues, such as cost management and “anti-dumping” concerns.

Looking ahead, we expect consolidation to continue, especially in the fragmented steel sector. Securing energy supplies, guaranteed access to competitively priced raw materials, cost reductions strategies, and the health of end-market industries will continue to remain on CEOs’ agenda. At the same time the external regulatory environment is driven by the impact of Sarbanes-Oxley, IFRS adoption and European Union Emissions Trading Scheme to name a few.

Metals challenges

* Applying IFRS in metals
* Consolidation, business transactions
* Increased need for transparency and disclosure in financial statements. Corporate Social Responsibility (CSR) reporting
* Sarbanes-Oxley
* EU Emissions Trading Scheme

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