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Taiwan Metals Report Q4 2011
Business Monitor International, Oct 2011, Pages: 45
The Taiwanese steel industry is set for a period of slowdown going into 2012, although infrastructure projects should support long steel production, according to BMI’s latest Taiwan Metals Report.
In the first eight months of 2011, Taiwanese crude steel output was up 10.0% year-on-year (y-o-y) to 14.23mn tonnes with a strengthening of volume going into Q311. This puts it on course for output of 21.62mn tonnes, 1.18mn tonnes higher than we forecast in the previous quarter. We have also revised up our hot-rolled output from 22.21mn tonnes to 24.92mn tonnes, with growth of 8.0% y-o-y. The industry is operating at around 85% of full capacity with plenty of room for growth.
However, recent economic data reaffirm our call for a deceleration of Taiwan’s economy. Not only did Q211 GDP growth come in at 4.9% (down from 6.4% in Q111), but industrial output and export orders also followed a worsening trend across the quarter. With our outlook on Taiwan's main trading partners – China, the US and Japan – remaining subdued, we caution that there will be a significant slowdown in Taiwan's economic growth in the coming months, and we cannot rule out a collapse in 2012. We expect headline real GDP growth to remain at 4.3% in 2012, unchanged from 2011, putting us below the consensus of 5.2% and 5.0% in 2011 and 2012 respectively.
As a result of domestic and external factors, we anticipate a stagnation of the Taiwanese steel industry with the pace of growth seen in flat products, the key driver of output in 2010 and 2011, slowing to a crawl. Metals consumption in general will weaken as a result of stagnation and contraction in the country’s manufacturing sector. Meanwhile, the excessive build-up in inventory seen in recent months appears to be cooling, suggesting that production activity is likely to moderate in due course.
We are also seeing a slowing of industrial production activity. The island's industrial output growth registered 3.6% y-o-y in June, down sharply from 7.8% in May, maintaining its downtrend since January, when y-o-y growth stood at 17.4%. The three-month moving average dropped to 6.1% from 9.5% in May. We believe recent developments correspond with our view for a moderation in Taiwan's overall steel production activity.
However, we expect long steel to be supported by the government’s multibillion dollar projects in the transport and energy infrastructure subsectors. Added to this is the effect of the post-tsunami reconstruction effort in Japan, which should help to tighten the Asian market over the medium-term and offset any slowdown in Chinese consumption growth. This should boost EAF-based production, which relies on scrap and typically produces long products. On this basis, we see crude and hot-rolled steel production both rising, to 21.8mn tonnes and 25.2mn tonnes respectively in 2012.
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