Taiwan's Steel Industry Sees Output Value Surge 9.4% QoQ in Q2

Amid market fluctuations, Taiwanese steelmakers turned out NT$330.9 billion of products in the second quarter of this year, up 9.4% quarter-on-quarter (QoQ) but down 5.1% year-on-year (YoY), according to the latest report issued by Industry & Technology Intelligence Service (ITIS) of Metal Industries Research & Development Centre.

The report shows the industry exported NT$124.5 billion of various steel products in the quarter, up 4.7% QoQ but down 8% YoY. Most of the products were hot-rolled, cold-rolled and galvanized steel coils and were shipped to China, the U.S., Indonesia and Thailand, which together absorbed 43% of the total. Meanwhile, imports totaled NT$96.4 billion, significantly up 18.1% QoQ but down 3% YoY, with 65% of which coming from Japan, China, the U.S. and S. Korea, mainly galvanized stainless steel coils coupled with steel alloys and hot-rolled galvanized steel sheets.

While the domestic market demand totaled NT$302.8 billion in the quarter, up 1.7% QoQ but down 11.5% YoY, the industry's import dependence ratio stood at 37%, shows ITIS's report.

Industry Movement

The board of China Steel Corp. (CSC), the largest steelmaker by both revenue and output in Taiwan, recently approved additional investment of US$60.06 million (about NT$1.8 billion) for its subsidiary, China Steel Corporation India Pvt., Ltd., established in India's capital of New Delhi, to further expand its steel capacity to better explore the considerable market for motors in the country, according to the Taiwanese firm.

CSC pointed out that it has already poured US$178 million (some NT$5.3 billion), US$66.58 million from within, into the Indian subsidiary to construct a plant of middle and high-end galvanized electromagnetic steel sheets since last year. The construction is still underway and scheduled for completion in the third quarter of 2014. Right after the factory starts up, CSC will immediately begin its second-phase construction, including cold-rolling, galvanizing and pickling lines with planned annual output of one million tonnes, to cost roughly over NT$20 billion.

Despite market ups and downs over the past year that forced cutting nominal prices of domestically sold steels for July and August by 4.66% on average compared to June, the steelmaker still raked in consolidated revenue of NT$29.104 billion in August, slightly down 1.15% month-on-month but up 2.9% YoY.

The firm's latest financial report shows that its aggregate revenue for the first eight months of this year totaled NT$231.706 billion, diving 7.17% YoY; but, pretax profits for the first seven months tripled to NT$14.039 billion. The chairman Tsou Jo-chi attributed the banner profits to teamwork by employees on improving daily operation efficiency, indicating that the firm's cumulative shipment volume during the January-July period increased 6.7% yearly with operating costs declining by 13.2%, leading to a 147% increase in gross profits and tripling pretax profits, despite sales value down 8.2%

Meanwhile, the Taiwan-based Formosa Plastics Group, the largest plastics and petrochemical group on the island, recently acquired 31% ownership of the Iron Ore Bridge project in the Pilbara iron ore deposit in western Australia for US$1.15 billion, boosting its presence in the global steelmaking industry.

The iron ore project was originally 88% owned by Australia's Fortescue Metals Group Ltd. (FMG), now world's fourth-largest iron ore producer by output, and 12% by China's state-owned Shanghai Baosteel Group Corporation. Through the abovementioned deal, Formosa Plastics Group will not just acquire a 31% stake in the project to secure stable supply of iron ore to sustain its steelmaking business, but will also be allowed to access to FMG's rail and port facilitates, which are only around 100 kilometers away from the invested iron ore belt, whose reserves are estimated at over 5.2 million tonnes.

In fact, the group has actively diversified into steelmaking for years, and recently accelerated its deployments in the business. It invested US$1.3 billion in setting up a stainless steel mill in Fujian, southeastern China, which has been rolling since the first quarter of this year with planned annual output of 120,000 tonnes of hot-rolled stainless steel coils, and 600,000 tons of hot-rolled, pickled and annealed stainless steel coils.

Meanwhile, the construction of the steel complex in Ha Tinh, Vietnam, is also part of the group's steelmaking deployment. Costing US$10 billion, the first phase construction on a 1,500 hectares, including installation of production facilities for molten iron, steel billets, and hot-rolled steel and with annual output of 7.07 million tones, is scheduled for completion in the second quarter of 2015, when the first blast furnace will be activated. The second phase on another 1,300 hectares will then be carried out to add to the complex's overall output of about 22.5 million tonnes once finished.

Big Events

The BHP Billiton Mitsubishi Alliance (BMA), the largest coal producer in Australia, as well as world's largest resource company by profits, whose business scope includes the mining and exploration of iron ore, diamond, oil, natural gas, copper, uranium and alumina, reached an agreement with Japan's Nippon Steel & Sumitomo Metal on supplying high-quality hard coking coal to the latter for US$145 per tonne on an FOB (free on board) basis starting the third quarter of this year, US$27, or 15.7%, lower than a quarter earlier.

ITIS indicated that since China, Japan and S. Korea are the world's major consumers hard coking coals, results of regular negotiations between Australia and Japan and S. Korea over long-term coking coal supply agreements influence international prices of the material. Therefore, the abovementioned new agreement with a higher price of the raw material sets a positive tone for the global steelmaking industry in the near future.

However, dampened by a sagging global market for iron ore, Vale of Brazil, world's biggest mining company and one of the largest iron ore producers, cut its iron ore output by 21% YoY to 67.54 million tonnes in the first quarter, sending a shock wave across the global steelmaking industry. ITIS pointed out that the Brazilian company produced 320 million tonnes of the raw material in 2012, when its net profits sharply dropped 74% YoY to US$4.86 billion, the lowest since 2004. The company's misfortune deteriorated the global steelmaking industry's downturn in the second quarter of this year.

Antidumping Impact

The rise of steelmakers from China and S. Korea, who have strong price competitiveness globally, has aroused growing concerns in some countries over underselling and dumping, resulting in gradual restructuring of the global steel market.

One recent example is, ITIS reported, that Mexico has just launched an antidumping probe into steel imports from China and S. Korea following a lawsuit filed by a local steel association. According to data provided by local steelmakers in the case, China, for instance, exported 143,219 tonnes of steels to Mexico in the first quarter of this year, surging 18.4% YoY, to seriously impact local operators with steel imports from China being duty exempt, while Chinese manufacturers are given a 15% subsidy for exports, leading to unfair competition in the Mexican market.

According to Mexican officials, imported galvanized steel wires for nets from China, and cold-rolled steel coils from S. Korea are involved in the case, with the former being dumped at extremely low prices, and the latter imported at prices that are 16-17% lower than in its origin country. Presently, the Mexican government has imposed antidumping duties of 60.4% and 6.4% on Korea's Pohang Iron And Steel Co., Ltd. and Hyundai Corp., respectively.

Coincidentally, the Taiwanese government has also imposed four-month provisional antidumping duties of up to 46.02% on importers from the two said foreign countries since mid-August, making it the first antidumping penalty on foreign importers of stainless steel.

Considering that applications of the stainless steel imports in the case are so wide that a later decision to formally impose five-year antidumping penalties may further hurt the said local manufacturers, the government therefore has sent officials to China and Korea for further investigation, and is scheduled to decide if the current provisional penalty should turn into formal measures in mid-October.

Unstable Market

ITIS concluded that the global steel market will remain unstable in the second half of this year after several months of fluctuations, and that the global steel industry was depressed in the first half mainly due to slower than expected market recovery, which led to a serious supply-demand imbalance, especially in China with sharp price drops that impact global steelmakers.

Despite still lingering excess steel supply in China, the good news is that steel prices in Asia have generally bottomed out recently, except those in Northeast Asia, which remain comparatively weak because of devalued Japanese yen and Korean won. As CSC had already raised, to lead Asia, its nominal prices of domestically sold steel by NT$379 per tonne on average, including an increase of NT$708 for the hot-rolled steel price, for the October-November period, and because the price adjustment so far seems harmless to currently growing demand for hot-rolled steel plates from downstream manufacturers, it is rational to expect ripple effect in price hikes among Asian steelmakers in the near future.

Output of Taiwan's Steel Industry
Period	2011	Q4, 2012	Q2, 2013 (estimated)			2013 (forecast)
	Value	Value	Value	QoQ Growth	YoY Growth	Value	YoY Growth
Output	1519.9	302.4	330.9	9.4%	-5.1%	1334.8	3.0%
Import	421.3	81.1	96.4	18.1%	-3.0%	374.4	2.6%
Export	559.8	119.5	124.5	4.7%	-8.0%	531.7	2.7%

Source: Metal Industries Research & Development Centre