(Reuters) – – If one was to compile a list of the biggest risk to metals and mining companies right now, it’s unlikely that planning and executing a renewed growth strategy would the top issue.
But that’s exactly the view of consultants Ernst & Young (EY), who recently produced a report highlighting the top risks for metals and mining companies in the next year, and how these have evolved since the peak of the commodity cycle in 2008.
There is obviously merit in the idea of thinking ahead and preparing for an upswing in commodity demand and prices, even if that recovery is nowhere to be seen presently and to many in the industry seems like it’s not even on the horizon.
“Pro-cyclical, short-term behaviour currently prevails, with the collective industry mindset focused on consolidation and capital returns in a low-growth environment,” EY said in the report. “But standing still is not an option: we believe now is the time to prepare for a switch to growth.”
There’s very little to argue with in EY’s reasoning, but it’s also hard to imagine any board of directors in a metals or mining company putting expansion planning atop their to-do list.
Most companies are currently still in a siege mentality, battling low prices and muted demand growth for their products.
Take iron ore, for example, where even the lowest cost producers such as the Anglo-Australian pair of Rio Tinto and BHP Billiton are very much focused on cutting costs and driving productivity.
In their recent investor presentations after reporting steep declines in profits, both companies talked a lot about what they were doing to run their businesses at maximum efficiency, and very little about what their future expansion plans were.
For the rest of this column, click here: http://uk.reuters.com/article/2015/09/21/column-russell-metals-outlook-idUKL4N11R20720150921