Soaring Materials Prices Cause Problems for Machine-tool Makers

Thanks to sharp price hikes for Brazilian pig iron, Taiwan's importers have boosted their pig-iron quotations for second-quarter delivery to US$545 per metric ton, up 12.37% from prices quoted just three months ago. The price of coke, which is used as a fuel to reduce metallic oxides in metals, has skyrocketed 28.5% over the past three months.

These developments have prompted Taiwanese cast-iron producers to predict that the prices of cast iron for delivery in the second quarter of this year will hit a historic high of NT$45 (US$1.38 at NT$32.5:US$1) per kilogram. Some even caution that prices of more sophisticated cast iron might break the NT$50 (US$1.53) mark per kilogram. As a result, manufacturers are warning downstream producers of machine tools to adjust for higher materials costs as quickly as possible.

Along with the jump in Brazilian pig iron, some of Taiwan's pig-iron wholesalers are lamenting that prices of second-grade pig iron imported from India and Vietnam have also jumped recently, to US$540-550 per metric ton.

To ensure a stable supply of cast iron, Edward Yang, president of both the Goodway Machine Corp. and Awea Mechantronic Corp., recently asked major cast-iron suppliers (including the Cheng Sheng Co., Ying Chieh Cast Iron Co., Chih Shen Co., and Cheng Fong Co.) to afford him supply priority to facilitate his production of machine tools in the second quarter.

Yang, who also serves as chairman of the new Taiwan Machine Tool & Accessory Builders' Association, stressed that the current wave of pig-iron price hikes will have an adverse impact on exports of Taiwanese-made machine tools and industrial machinery this year. The association has asked the Industrial Development Bureau of the Ministry of Economic Affairs to call a meeting of cast-iron and machinery manufacturers to work out measures to alleviate the impact. He has also asked the China Steel Corp., the island's largest integrated producer of steel products, to provide a sufficient amount of steel to meet the needs of the domestic machinery industry.

Price Hikes Inevitable

Major domestic machine-tool manufacturers, including Goodway Machine, Awea Mechantronic, She Hong Industrial Co., Falcon (Chevalier) Machine Tools Co., and Kao Ming Machinery Industrial Co., have stated that they will raise the selling prices of their products by more than 5% in the second quarter of the year, as they are unable to absorb all of the increased materials prices themselves.

Yeh Hsin-hua, president of She Hong, one of Taiwan's leading manufacturers of CNC machining centers, reported that his clients understand that the materials price hikes are a universal problem and are able to accept higher prices for machinery products. She Hong managed to boost its own prices by over 10% last year without incurring the wrath of its customers, and Yeh expects to raise his prices even more in response to the increased cost of cast iron.

Goodway president Edward Yang said that his company has also made preparations to raise its quotations quickly in response to rising prices of such materials as cast iron. The company expects to announce price hikes around the time of the Chinese New Year holidays, which fall in early February.

Kao Ming, which concentrates on the development and production of large double-column machining centers, said that the increased cost of cast iron imposes a heavy burden on its operations, since each NT$1 (US$0.03) increase in the price of a kilogram of cast iron costs it an additional NT$30,000 (US$923) to produce each of its 30-ton machining centers.

The company estimates that its profit margin will slip by 7% to 8% if the cost of cast iron goes up to NT$50 per kilogram in the second quarter, as expected. To remain viable, the company plans to raise the prices of its double-column machining centers by more than 5% in the near future.