Taiwan's Steelmaking Industry Produces NT$302.4 B. in Q4

Three largest export outlets being China, Japan and Malaysia

Taiwan's steelmaking industry posted output value of NT$302.4 billion in the fourth quarter of last year, slightly up 1.31% from a quarter ago, according to the latest report issued by the Metal Industries Research & Development Centre (MIRDC), a local researcher.

The report indicates that the industry exported NT$NT$119.5 billion of steel, mostly coils and sheets, including hot- and cold rolled and galvanized sheets, in the quarter, down 7.79% from a quarter earlier. The three largest export outlets were China, Japan and Malaysia, together absorbing 24.6% of the total.

The industry's imports totaled NT$81.8 billion, down 10.7% quarterly, 40.65% of which from China, 28.9% from Japan and 14.5% from South Korea, shows the report. Hot-rolled stainless steel coils, hot-rolled steel coils and sheets and other steel alloys made up the majority of the total. Meanwhile, the domestic market demand reached NT$264.7 billion for a 1.61% quarterly growth.

For the whole year, MIRDC forecasts, the industry's output and exports will have amounted to NT$1.2931 trillion and NT$518 billion, respectively, diving 14.92% and 7.47% yearly, with imports of NT$365 billion, 13.36% less than 2011.

Global Operators' Movement

The MIRDC points out strategies and moves by several global operators will impact the development of the global steelmaking industry in the short term.

China Steel Corp. (CSC), the largest steelmaker in Taiwan by both output and revenue, has been carrying out its so-called “Two 2,000” project, involving more than NT$200 billion in investment to boost the steelmaker's annual output to over 20 million tonnes in the coming years.

The recent construction of two new blast furnaces and a hot-rolling line for over NT$100 billion by CSC's subsidiary, Dragon Steel Corp., is part of the project. However, MIRDC opines that it remains to be seen if the capacity expansion will bring the CSC Group optimal benefits and enhance added-value of output as expected in the near future, when global steel supply will likely exceed demand.

Also notable is the Luxemburg-headquartered ArcelorMittal, the world's leading integrated steel and mining company, who wrote down the value of its European business by US$4.3 billion in the fourth quarter of last year to cope with seriously plummeting demand for steel amid an uneven EU economy, according to MIRDC.

ArcelorMittal reported earlier that European demand for steel shrank 8% last year compared to a year ago, and pessimistically forecasts that it can't expect to realistically recover in the short term. The world's steel giant added that European demand had plummeted 29% in 2007 through 2012, hence hobbling its cash flow for steel business in Europe to lead to decline.

Compared to European steelmakers' pessimism, Gerdau S.A., one of Brazil's major steel companies, announced a new investment in mining for 2016, including an expansion of iron ore output from 11.5 million tonnes in 2013 to 18 million tonnes in the years to come, as well as the construction of a railway in Minas Gerais, an eastern state of Brazil.

Gerdau's current mineral resources are technically assessed to reach 6.3 billion tonnes with ferrous content of over 40%, far higher than 2.9 billion tonnes reported earlier. The MIRDC indicates that the abovementioned new investment will enable the Brazilian steelmaker to not just run at 100% self-sufficiency of iron ore, but also market the raw material globally to further drive performance. To date, Gerdau is a major maker of steel bars in America, as well as one of the world's largest suppliers of special steels, whose footholds are consolidated in 14 countries in America, Europe and Asia. In 2011, the maker produced 20.5 million tonnes of crude steel as the world's 14th-largest supplier as ranked by the Worlds Steel Association, MIRDC reports.

Also beset by a sagging market in Europe coupled with rising costs of scrap steel, several large Russian steelmakers have suspended steel production in mills in Europe, notes the MIRDC. For example, OAO Severstal has shut down its blast furnace in Italy, with Evraz plc. having ceased production of its mill in the Czech Republic.

Despite anxiety among global steelmakers in Europe, Wolfgang Eder, president of Eurofer, an association of European steel companies, says that excess steel supply is unlikely to remain for more than 15 to 20 years, and the industry will ultimately find better times in the next 3 to 5 years. However, Eder also admits that during the painful period of balancing supply and demand, the industry will inevitably be forced to lay off 20-25% of around 400,000 employees in Europe, or more than 100,000 steel workers to possibly wobble the European economy and development of the global steelmaking industry, according to the MIRDC.

Headline in Q4

Taiwanese steelmakers received bad news in the fourth quarter of last year, when Australian Customs and Border Protection Service announced punitive duties from 2.6% to 15.45% on imports of hot-rolled steel coils from Taiwan, Japan, S. Korea and Malaysia, based on proven antidumping by such suppliers.

The MIRDC says that the punishment, once in effect, will seriously hamper CSC and other Taiwanese steelmakers who depend on hot-rolled steel coils as major export in the future.

Future Remains Optimistic

After a depressed year in 2012, the MIRDC feels that the industry's future remains bright in the short term, because the EU economy is on the mend from the debt crisis, while the U.S. has overcome the fiscal cliff turbulence. Besides, with some countries resorting to quantitative easing to fuel economic growth, interest rates are likely to drop to trigger a new wave of realty speculation, which, in turn, will help drive the global construction industry and stimulate considerable demand for steel, especially in emerging countries.

Average steel consumption per-capita in emerging countries will peak in the next decade, forecasts the MIRDC, who adds that to firmly seize such huge business opportunities, Taiwanese steelmakers should step up deploying operations in these markets now to set up advantageous positions.

Taiwan Steelmaking Industry's Output Unit: NT$1 billion
Period	2011	Q4, 2011	Q3, 2012	Q4, 2012 (estimated)		2012 (forecast)		Q1, 2013 (forecast)	2013 (forecast)
	Value	Value	Value	Value	QoQ Growth	Value	YoY Growth	Value	Value
Output	1519.9	368.3	298.5	302.4	1.31%	1293.1	-14.92%	325.0	1340.0
Import	421.3	98.7	91.6	81.8	-10.7%	365.0	-13.36%	92.0	380.0
Export	559.8	141.3	129.6	119.5	-7.79%	518.0	-7.47%	125.0	550.0

Source: Metal Industries Research & Development Centre