SMU Community Chat: Ira Kreft shares thoughts on M&A, economy, and more

A metals expert for BoA’s Global Commercial Banking division, Kreft works with companies up and down the metals value chain. He’s a familiar face at many industry events and keeps a finger on the pulse of the metals sector.

On Wednesday’s chat, he and SMU managing editor Michael Cowden discussed various topics, including steel prices, the broader economy, and consolidation within the steel industry.

On recession, pricing, decarb, and more

On the economy, Kreft said BoA is not calling for a recession but a soft landing in 2024. He said GDP growth will likely be below trend, growing about 0.5% in Q1 and Q2.

Kreft said scrap prices came in pretty solidly in the December trade. Current price levels of scrap, iron ore, and pig iron, combined with an ongoing recovery in automotive following the end of the United Auto Workers strike, are supportive of recent price increases for steel, he said.

Decarbonizing the steel industry comes with a price tag, and Kreft talked a bit about financing for decarbonization and sustainability projects. He noted that the Canadian government has been very supportive of financing, with Algoma and ArcelorMittal Dofasco both benefiting in that regard. In the US, more monies have become available from the Department of Energy and other government agencies, but Kreft said demand for these programs has been much more substantial than availability.

Regarding M&A in the industry, Kreft said there’s been far less consolidation at the service center level than the mill level, so there’s still quite a bit of room for M&A. He noted they’ve been seeing more service centers going downstream. In these cases, he said it’s important to be mindful of companies not competing with their customers. Some companies have been able to execute this successfully without damaging their customer base, and that’s the goal, he said.

Kreft’s attendance at industry conferences helps him stay informed and well-connected. In addition to providing great networking and prospective business opportunities, events also provide a good perspective on companies, including their products, their position in the market, and key contacts, Kreft said. This perspective helps him better understand and explain their businesses to BoA’s credit and risk departments.

Kreft stressed the importance of networking and noted that some M&A opportunities arise from networking when maybe those companies weren’t even for sale at the start.

On valuations when considering M&A, Kreft said there have been much different discussions over the last two years versus the previous three years. “There’s a valuation gap that exists out there … if you [the seller] start building your expectations based on prior years,” he commented.

This article only summarizes a portion of the Community Chat with Kreft. SMU subscribers can access a replay of the entire conversation on our website.

SMU has 2024 Community Chats in the works with Wolfe Research Managing Director Timna Tanners, CRU’s Head of Steelmaking Raw Materials Erik Hedborg, and more. Stay tuned for registration information.