Taiwan's Steel Industry Production Up by 4.6% in Q2

The Metal Industries Research & Development Center's (MIRDC) latest report shows Taiwan's steel industry turned out NT$403.58 billion worth of steel products in the second quarter for a 4.6% growth from the first quarter or an 11% rise from last year.

The report shows that the island's exports of steel products came to NT$143.41 billion in the second quarter of the year, was generated from exports, for a 9% increase from a quarter earlier or up 7.9% from a year ago. Some 34.6% of the exports went to China, Japan and Korea, the top three buyers of Taiwan-made steel exports in the quarter, with hot-rolled, cold-rolled and galvanized steel coils and sheets being the industry's hottest sellers.

The industry also imported NT$111.04 billion of steel items in the second quarter, up 2.9% quarterly or 3.7% yearly. China led as the biggest supplier with a 38.8% share, trailed by Japan and Korea at 33.1% and 11.1%, respectively. Hot-rolled stainless and galvanized steel coils and sheets were the largest imports, shows the MIRDC report, which also said Taiwan's steel market expanded 2.5% quarterly or 9.9% yearly to NT$371.21 billion in the quarter.

Output Cut
Weak international steel prices coupled with tepid local demand due to seasonal factors drove Taiwanese steelmakers to cut output during the quarter. However, skyrocketing contract prices of raw materials still pushed growth ahead for the industry.

MIRDC analysts say that higher prices of coal and iron ore enabled the Taiwanese sector to raise overall steel prices by 12.1% from April through May, effectively sustaining industrial growth compared to a quarter earlier.

Rising contract prices of raw materials will buoy growth for the industry in the months to come, despite analysts' prediction that global market demand will remain sluggish due partly to apprehension towards the macro economy in Europe and the U.S. and partly to inventory drawdown by downstream manufacturers. But, the flagging market is expected to recover in September, when downstream manufacturers will start to restock, driven by more new home constructions in emerging countries as China.

Sustained Growth
Taiwan's major steelmakers have been busy expanding output, a trend to assure sustainable growth for the near future.

To assist local motor manufacturers to develop higher-end materials, China Steel Corp. (CSC), the largest steelmaker on the island, has invested NT$14.2 billion to set up its third production line of electromagnetic steel sheets, to come online by the end of 2014 with maximum annual output of 150,000-200,000 metric tons.

MIRDC says the new production line will help CSC, the seventh-largest supplier of electromagnetic steel sheets globally, raise its maximum output to 900,000 metric tons when operational, regarded as not only a driver of business growth for the company, but also a strategic move to bolster development of Taiwan's motor industry, especially significant when the Taiwanese government plans to set up an industrial park for motor manufacturing in southern Taiwan in cooperation with CSC, MIRDC and National Cheng Kung University.

Meanwhile, to strengthen business deployments in China, CSC has just signed a cooperation agreement with China-based Sinosteel Corp. to jointly develop higher value-added steels. With both parties also agreeing to expand cooperation on bilateral trade, engineering, operational management, renewable energy and material development, MIRDC analysts say that CSC is expected to keep leading growth of the industry in the coming years.

New Page
CSC's industrial significance has also been boosted by setting up in eastern China the subsidiary Changzhou China Steel Precision Materials Co., Ltd., which makes titanium billets for shipment to CSC in Taiwan to supply to local downstream manufacturers to turn out titanium plates, sputtering target materials and wire rods.

Considering that no Taiwanese steelmakers were capable of making titanium items in the past, MIRDC stresses that CSC has turned a new page in the industry's history, enabling Taiwanese manufacturers to source locally made titanium products without relying on imports, which helps not only upgrade the industry's production, but also sharpen Taiwan's metal product manufacturers' competitiveness.

Vertical Integration
CSC's Taiwanese counterpart E-United Group also plans to invest NT$10 billion to construct a ferro-nickel alloy mill in southeastern China, to begin building this September, with the plant to turn out 30,000 metric tons of nickel and 300,000 metric tons of ferro-nickel alloy a year initially, and double as much later.

MIRDC analysts say the construction project reflects the group's determination to better vertical integration of manufacturing to lessen impact from external factors, especially when fluctuations of international nickel prices in recent years have destabilized stainless steel prices to annoy operators.

Tycoons Group Enterprise Co., Ltd. is also following the trend to vertically integrate production by planning to construct an electric steelmaking plant in Thailand, which has been officially approved to start building next year at the earliest, with the plant to help the company's subsidiary, Tycoons Worldwide Group (Thailand) Public Co., Ltd., secure additional supply of around 500,000 metric tons of steel and billets.

Market observers give the thumbs up to the investment considering the ASEAN (The Association of Southeast Asian Nations) bloc is an increasingly influential free trade zone globally. The new electric steelmaking plant will enhance Tycoons Worldwide's position in Thailand to further profit potential of the Tycoons Group in Southeast Asia.

Social Housing a Boom
MIRDC analysts also point to China's social or affordable housing program as part of its 12th Five-Year Plan as promising news for Taiwan's steelmaking industry.

The Chinese government is speeding low-income housing constructions, aiming to build 10 million affordable homes by the end of this year, over 40% of which being built in Beijing, Shanghai, Guangzhou and Shenzhen, with over 36 million homes to be completed by 2015.

With the massive building program underway, MIRDC analysts forecast that over 30 million metric tons of steel will be needed in the country in the second half of this year, to be literally a boom for steelmakers across Taiwan and China. However, the analysts also warn that it may be too early to celebrate on-schedule completion of the plan, mainly due to China's current credit tightening policy weighing on the local real estate market.

Uncertain Future
Benefiting from seasonal booms and rebounding international steel prices, MIRDC analysts say that the industry's overall output value is likely to keep rising in the second half of the year, also to be buoyed by considerable short-term demand from China's low-income housing constructions.

Uptrend in international steel prices is the surest sign of optimism in the industry, to be fueled by not only brisk demand but also steadily growing contract prices of raw materials, especially when the world's major iron ore suppliers, including India, Brazil and Australia, are imposing taxes on raw material exports. Such price hikes are likely to accelerate in the future if the U.S. rolls out QEIII to again stop its economy from sinking into recession, MIRDC analysts say.

However, the analysts also admit that the steel industry's prospect remains uncertain, mainly due to a host of negative factors, including sovereign debt issues in Greece, Italy and Spain, high unemployment and difficult access to financing for small business in the U.S., civil strife in the Mid-East, inflation in China, and belt-tightening in Japan after the March 11 quake and tsunami. Such anxiety about waning demand is further testified by the OECD's (The Organization for Economic Co-operation and Development) latest report, which shows GDP growths in emerging countries, such as Brazil, China and India, have slowed significantly, while the U.S. and developed economies in Europe are struggling with weak growths.

Amid mixed views of the industry's future, MIRDC forecasts the industry to finish the year with output value of NT$1.4877 trillion for a 5% growth compared to last year, with NT$552 billion to be export-generated and market scale to also grow 3.8% to NT$1.3479 trillion.

Taiwan'sSteelmaking Industry Output Unit: NT$1billion
	2008	2009	2010	2011
				Q2		1st Half		Full Year (estimated)
	Value	Value	Value	Value	Q-on-Q Growth	Value	Y-on-Y Growth	Value	Y-on-Y Growth
Output	1536.9	961.4	1416.8	403.6	4.6%	789.3	16.7%	1487.7	5.0%
Export	566.0	401.5	510.4	143.4	9.0%	275.0	10.2%	552.0	8.2%
Import	250.1	250.1	392.6	111.0	2.9%	219.0	13.8%	512.2	5.0%
Scale of Local Market	1482.9	810.0	1299.0	371.2	2.5%	733.2	18.5%	1347.9	3.8%

Source: MIRDC