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Taiwan Metals Report Q1 2011
Business Monitor International, Jan 2011, Pages: 50
The Taiwan Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Taiwan's metals industry.
Taiwan's steelmaking industry sustained its recovery throughout 2010 and going into 2011 due to gains in downstream sectors. However, optimism has been dampened slightly by rising costs, pressure on product prices and the appreciation of the Taiwanese dollar, according to this latest Taiwan Metals Report from BMI.
Taiwanese crude steel output rose 22.4% year-on-year (y-o-y) to 19.57mn tonnes in 2010. Due to strong price performance in H110, the industry’s output value surged by over 40% y-o-y to TWD1.35trn, with exports rising 37% to TWD548bn. Crude production has been shored up by the restart of China Steel Corporation’s (CSC) No.1 blast furnace in June, which has 1.9mn tonnes per annum (tpa) production capacity and was closed for maintenance in January. With five blast furnaces operational, CSC was expected to produce 13.5mn tonnes in 2010.
Although volumes were consistently up throughout 2010, margins were squeezed in H2 due to rising costs and downward pressure on sale prices. There were no signs, however, that the recovery would stall going into 2011. Despite an influx of cheap steel into Taiwan as the Taiwanese dollar appreciated in value, CSC reported an increase in its order volume by 4% quarter-on-quarter (q-o-q) to at least 2.6mn tonnes in Q410. By December 2010, China Steel Corporation, Yieh Phui and Sysco had orders for 90- 100% of their planned output for Q111.
There is growing optimism among Taiwanese steelmakers, reflected in the growing investment in capacity expansion. In November 2010, CSC launched its ‘Double 2000’ scheme in which it will invest TWD200bn (US$30bn) over the following five years to raise steel production capacity from 11mn tpa in 2010 to 20mn tpa in 2015. CSC’s Dragon Steel is to contribute significantly to the expansion with a second blast furnace due to come onstream by end-2012. Walsin Lihwa Corporation is investing TWD15bn in capacity expansion in 2010-13, including TWD4bn on building a new pickling plant in Taiwan and TWD3bn on upgrading production processes in its steelmaking factory in Shandong in China.
Taiwanese production is being affected by a combination of moderating economic growth in China, higher crude oil prices and a rapid rise in global petrochemicals capacities. However, this will be offset by improved trade relations between Taiwan and China through the Economic Cooperation Framework Agreement (ECFA). This will give it an advantage over Korean and Japanese rivals, with progressive reductions in duties leading to tariff-free entry to the Chinese market by around 2014. Taiwanese makers can expect to save an estimated US$60mn in duties exporting to China in 2012. With the duty free advantage, Taiwanese steelmakers can tap the vast Chinese domestic market to offset inventory risks more easily than before, especially when the local market suddenly cools.
Chinese consumption will be crucial to the recovery of metals markets and prices. According to the World Steel Association, growth in global steel demand is expected to slow to 5.3% in 2011, led by Brazil, Russia, India and China, the latter being the largest producer and consumer by far. The continued urbanisation process and increased disposable income will spur growth. Also reassuring for Taiwanese producers is China’s policy of consolidating and eliminating capacity within the steel sector in order to improve efficiency and avert long-term over-supply. However, for the rest of the forecast period, growth in both output and consumption is set to slow as the market matures and capacity growth is more limited.
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