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Taiwan Fastener Makers Seek to Fix Supply Chain Following Forced Closure of Surface Treatment Plants

2014/04/02 | By Steve Chuang

With some local surface treatment factories officially ordered to shut down due to the violation of environmental protection laws in Taiwan's southern metropolis of Kaohsiung, where more than 80% of Taiwan's fasteners are made, domestic fastener manufacturers are doing everything they can to repair their supply chain breakdown and cushion its impact in he coming months.

The wave of mandatory plant shutdowns followed the disclosure of illegal pollution caused by the Kaohsiung factory of the Advanced Semiconductor Engineering (ASE) Group, the largest semiconductor testing and packaging supplier in the world by market share. The ASE plant was found to have illegally dumped industrial wastewater into a river, and was ordered to close down for a time in 2013.

This incident aroused the ire of citizens fed up with industrial pollution of the local environment, and raised concerns about the further review and inspection of pollution controls at local factories, particularly those using hazardous chemicals and other substances. Consequently, many local electroplating, pickling, and other surface treatment factories, which make up the midstream sector of the fastener industry, have been forced to shut down following strict inspections by the Environmental Protection Bureau of the Kaohsiung City Government.

Taiwan-made fasteners have been well received worldwide for great balance between price and quality.
Taiwan-made fasteners have been well received worldwide for great balance between price and quality.

According to insiders, the closure of illegally-operating pickling and electroplating plants has confronted the fastener industry with a supply chain breakdown, likely leading to a drop of around 25% in output value, or the equivalent of NT$30 billion (US$1 billion), this year. Even worse, with the local government increasingly clamping down on industrial pollution, fastener manufacturers and wire rod suppliers will be forced to spend more resources improving production controls to reduce pollution. The result of this, in addition to reduced pollution, will be a sharp rise in production costs and, consequently, a decline in global competitiveness.

A director of Quintain Steel Co., Ltd. , a major supplier of wire rods, said that after the closure of electroplating and pickling factories paralyzed part of his supply, his own company has had to take over the handling of waste acid from surface treatment in order to keep up supplies, doubling its cost from NT$2,000 to NT$4,000 per ton. This situation could drive a final nail into the coffin of Taiwanese wire rod suppliers that have managed to keep up only meager profit margins.

Although legal electroplating plants have kept rolling, mostly now in full swing, many fastener manufacturers have been hit by by tightening supplies and delayed deliveries. This has prompted most of them to switch from sea to air shipment to keep their customers happy--at 10 times the transportation cost. One insider reports that the total cost of manufacturers will soar by US$100 per ton--and that this is a very conservative estimate.

Faced with these dire problems, some large manufacturers and the Taiwan Industrial Fastener Institute (TIFI), a local fastener maker federation based in Kaohsiung, have pessimistically predicted that the industry's output value of nearly US$4 billion a year, 95% of which comes from exports, will likely drop by up to 25% this year.

CSC-led Solution

Fastener makers have mapped out a variety of solutions to the supply-chain crisis, including using steelmakers' facilities to handle waste acid; asking for support from electroplating and pickling firms in Tainan, a metropolis adjacent to Kaohsiung; and expanding capacity at existing legal surface treatment and waste acid processing plants. These solutions, insiders say, will take between six months and a year to ease the current supply insufficiency.

Perhaps the best solution is a plan led by China Steel Corp. (CSC), the largest steelmaker in Taiwan, to set up a large-sized waste acid and chemical processing base in cooperation with local fastener suppliers in the northern Kaohsiung region.

CSC vice president J.G. Liu proposed the plan at a brainstorming meeting with local steel and fastener makers, held earlier by the Bureau of Industrial Development under the Ministry of Economic Affairs at the Metal Industries Research & Development Centre (MIRDC), a government-funded R&D institute.

Liu noted during the meeting that since the fastener industry generates an output of over NT$120 billion (US$4 billion) annually and employs about 25,000 people, it is one of the most important drivers of the local economy in Kaohsiung. He said that the CSC, which is headquartered there, is willing to play a proactive role in solving the shortage of capacity for processing waste acid and chemicals by providing the resources and talent needed to establish a brand-new processing plant in association with industry players.

An MIRDC representative reported that the plant will cost about NT$800 million and will be located on a 16,500-square-meter plot in the Benjhou Industrial Park in Gangshan District of Kaohsiung City.

At the meeting, the CSC signed a memorandum of understanding with TIFI and participating companies, including such industry leaders as Sheh Fung Screws Co., Ltd., Thread Industrial Co., Ltd., Jinn Her Enterprise Co.,Ltd.,  and Boltun Corp., for cooperation in carrying out the plan, which is expected to boost performance and promote the sustainable development of the fastener industry amid growing global concerns over environmental protection.

Taiwan's fastener exports hit a record high in volume last year.
Taiwan's fastener exports hit a record high in volume last year.

Banner 2013Despite a downward drift in average prices due largely to a sluggish steel market, Taiwan's fastener exports totaled some 1.45 million tons worth about US$3.86 billion in 2013 to beat the previous year's all-time high of 1.42 million tons, according to statistics compiled by TIFI. (SC)

Taiwan's 2013 Fastener Exports, by Month
Month

Volume
(kilogram)

Proportion

YoY Growth Rate

MoM Growth Rate

Value
(US$1)

Proportion

YoY Growth Rate

MoM Growth Rate

Jan.

120,636,633

8.27%

5.27%

0.67%

320,553,762

8.30%

-1.43%

-1.18%

Feb.

89,717,386

6.15%

-15.80%

-25.63%

234,619,417

6.08%

-21.06%

-26.81%

Mar.

130,482,010

8.94%

16.29%

45.44%

338,654,004

8.77%

8.58%

44.34%

Apr.

120,079,702

8.23%

-0.93%

-7.97%

311,742,771

8.07%

-6.36%

-7.95%

May

130,722,791

8.96%

4.04%

8.86%

343,110,777

8.89%

-0.15%

10.06%

Jun.

118,018,707

8.09%

3.42%

-9.72%

310,914,387

8.05%

0.40%

-9.38%

Jul.

133,101,872

9.12%

11.17%

12.78%

352,895,676

9.14%

7.96%

13.50%

Aug.

123,206,413

8.44%

3.04%

-7.43%

329,500,383

8.53%

1.33%

-6.63%

Sept.

117,382,139

8.04%

5.25%

-4.73%

314,851,890

8.15%

1.34%

-4.45%

Oct.

127,884,405

8.76%

8.26%

8.95%

344,946,833

8.93%

6.19%

9.56%

Nov.

110,488,861

7.57%

14.66%

-13.60%

297,681,638

7.71%

12.09%

-13.70%

Dec.

137,643,038

9.43%

14.86%

24.58%

361,975,413

9.37%

11.58%

21.60%

Total

1,459,363,957

100.00%

5.79%

5.79%

3,861,446,952

100.00%

1.67%

1.67%

Source: Taiwan Industrial Fastener Institute

Taiwan's 2013 Fastener Exports, by Destination
Country

Volume
(kilogram)

Share

YoY Growth Rate

Value
(US$1)

Share

YoY Growth Rate

Average Price
(US$1 per KG)

YoY Growth Rate

The U.S.

577,297,320

39.56%

2.93%

1,430,415,416

37.04%

0.18%

2.478

-2.68%

Germany

129,015,570

8.84%

4.43%

339,589,788

8.79%

0.82%

2.632

-3.45%

Japan

77,164,139

5.29%

17.13%

239,051,957

6.19%

9.49%

3.098

-6.52%

The Netherlands

76,923,951

5.27%

6.83%

202,783,388

5.25%

5.55%

2.636

-1.19%

The U.K.

55,082,216

3.77%

-1.23%

148,435,588

3.84%

-3.43%

2.695

-2.22%

Canada

49,629,295

3.40%

10.69%

121,738,639

3.15%

6.11%

2.453

-4.14%

Russia

36,774,617

2.52%

58.13%

72,035,747

1.87%

40.50%

1.959

-11.15%

Italy

33,459,566

2.29%

19.22%

77,527,652

2.01%

12.51%

2.317

-5.62%

Poland

31,961,779

2.19%

6.57%

61,021,127

1.58%

4.10%

1.909

-2.32%

Sweden

26,489,480

1.82%

-8.90%

79,678,634

2.06%

-10.58%

3.008

-1.85%

France

23,250,010

1.59%

5.34%

63,891,373

1.65%

0.92%

2.748

-4.19%

China

22,462,735

1.54%

12.87%

125,372,757

3.25%

12.57%

5.581

-0.26%

Thailand

21,884,832

1.50%

-0.64%

62,843,805

1.63%

-5.63%

2.872

-5.03%

Mexico

21,114,699

1.45%

18.52%

56,905,788

1.47%

13.40%

2.695

-4.32%

Australia

20,108,022

1.38%

-0.57%

66,836,394

1.73%

-5.81%

3.324

-5.27%

Spain

19,677,620

1.35%

33.69%

48,512,166

1.26%

26.77%

2.465

-5.18%

Belgium

18,383,446

1.26%

0.15%

49,832,530

1.29%

-4.22%

2.711

-4.36%

Brazil

14,887,306

1.02%

-1.24%

40,387,548

1.05%

-0.71%

2.713

0.54%

Vietnam

14,437,090

0.99%

26.43%

40,821,356

1.06%

19.85%

2.828

-5.20%

Saudi Arabia

10,773,647

0.74%

-5.25%

22,665,168

0.59%

-13.19%

2.104

-8.38%

Others

178,586,617

12.24%

3.10%

511,100,130

13.24%

-4.11%

2.862

-6.99%

Total

1,459,363,957

100.00%

5.79%

3,861,446,952

100.00%

1.67%

2.646

-3.90%

Source: Taiwan Industrial Fastener Institute