TAMI Chairman in Taiwan Forecasts 10% Rise in Exports of Machinery by Local Makers

2015/02/02 | By Ken Liu

Compiled by KEN LIU

Chairman H.C. Hsu of the Taiwan Association of Machinery Industry (TAMI) projects the island's exports of machinery including machine tools to rise 10% this year from last year, with its precision machinery industry to generate revenue up to NT$1 trillion (US$32.25 billion) in 2015.

Hsu bases such optimistic outlook mostly on steady growth in machinery demand from global automobile, aircraft and electronics industries. Besides, continuing declines in oil price and electric bill allow Taiwanese manufacturers to budget more for capital investment in advanced technologies and capacity expansion.

Exports of Taiwan-made machinery will be boosted due to raised price-competitiveness enabled by the sustained drop in the NT-dollar-to-greenback ratio, which he feels will go to 32-33:1 this year, with such ratio fluctuating around 31.3:1 so far in 2015.

However, some obstacles remain, notably the relatively deeper deprecation Japanese yen against US dollar and stagnant talks between Taiwan and China over the Cross-Strait Agreement on Trade in Goods, which aims to remove mutual trade barriers including that blocking machinery.

Such general and overriding uncertainties, however, often do not impact particular makers who could still command niches comfortably: the island's machine-tool makers look to land hefty orders at the Taipei International Machine Tool Show 2015 (TIMTOS 2015) in March and the EMO Hannover in September in Germany.

Hsu points out that Taiwan's machinery and machine-tool industries ended 2014 with shipments and revenue both failing to meet goals due chiefly to the devalued yen, which significantly sharpened competitiveness of Japanese exporters including machinery makers.

According to statistics of Taiwan's Customs Administration, the island exported US$20.88 billion of machinery in 2014, up 5.7% from 2013's US$19.70 billion. When denominated in NT-dollar, the exports totaled NT$632 billion (US$20.38 billion), up 8.0% from a year earlier. Both growth rates failed to meet the projected 10%.

The island's machine-tool sector shipped US$3.75 billion of goods in 2014, missing its 8% year-on-year growth target with the registered 5.8% increase.

Taiwan's overall exports of NT$9.49 trillion (US$306.26 billion) in 2014 represented an increase of 5.0% from the previous year, with the electronics exports surging 15.9%, textile inching up 1.0%, information-technology communication slumping 9.2%, electrical-equipment receding 2.3%, steelmaking climbing 8.0%, petrochemical rising 4.1%.

Hsu says the machinery sector's 8.0% growth was acceptable relative to those of the other sectors.

He points out that China remained Taiwan's top export destination for machinery in 2014, importing US$5.79 billion, or 27.7%, of Taiwan-made machines to represent a 1.2% increase year on year. The United States came in second to absorb US$3.49 billion, or 16.7%, of Taiwan-built machines to mark an 11.2% growth year on year. Japan was the No.3 buyer, importing US$1.20 billion, or 5.8%, of Taiwan-made machines to register a 4.2% increase.

China was also Taiwan's largest export destination for machine tools last year, importing US$1.21 billion, or 32.4%, of Taiwan-made machine tools to register a 7.3% year on year increase. The U.S. imported US$414 million, or 11.1%, of Taiwan-built machine tools, increasing 3.0% from the previous year to be the No.2 buyer. Turkey purchased US$208 million, or 5.5%, or Taiwan-built machine tools, surging 18.5% year on year to be the No.3 importer.

Hsu points out that the NT-dollar-to-greenback ratio depreciated to a median 30.25 throughout 2014, dropping 2.12% from 2013, and is moving toward the ratio of 32:1.

However, the South Korea won has devalued 10.6% against the US dollar since 2007 versus the 8.6% rise of the NT-dollar, rendering Taiwan-made machines tools 20% less price-competitive relative to South Korea's.

The trade association head points to the steep depreciation of the Japanese yen as the bete noire for Taiwan's machinery makers on the global market, especially when Japan-made products are generally regarded as superior to Taiwanese counterparts as are Japan-made cars to those made in Taiwan. The cheaper yen has therefore diverted global orders from Taiwan to Japanese makers. Adding salt to injury, lower-priced machines made in China are also encroaching on market share of Taiwan's machine-tool makers.

Hsu adds that the Japanese yen has devalued as much as 35% or so to its 2007 level, motivating South Korea to also devalue its won, also suggesting the Taiwan government to allow the NT-dollar to slump to 32-33 to one greenback to enable Taiwan to better compete with the two Asian rivals in the global machine-tool market.

Also, he suggests the island's machine-tool makers to build capability to effectively fill surging and urgent orders, which implies the lack of such capacity currently; while the government should accelerate signing Free Trade Agreement (FTA) with major economies, which removes duties, to enable the island's machine-tool makers to compete on equal footing with global competitors.

Exports of Taiwan's Machinery and Machine Tools (2014)