Machine-Tool Makers in Taiwan Forced to Raise Prices

Forced to cope with the substantial increase in production costs, Taiwan's manufacturers of machine tools are considering raising the quotation prices by between 5% and 10%, said Edward Yang, chairman of Taiwan Machine Tool & Accessory Builders' Association.

Yang said the machine-tool sector is having to deal with an unexpected increase in production costs resulting from the hikes in prices of imported raw materials such as pig iron and coke.

Since early 2008, Kao Ming Machinery Industrial Co., one of Taiwan's leading manufacturers of double-column machining centers, notified all its customers of the new pricing-jacking up quotations across-the-board by 5% to 8%; while other leading machine-tool manufacturers, including Goodway Machine Corp., Awea Mechantronic Co., Victor Taichung Machinery Works Co. and Falcon (Chevalier) Machine Tool Co., are very likely to raise quotations sometime in the second quarter of this year, with Goodway and Awea probably increasing prices by 5%.

Golden Sun Industrial Co., which focuses on producing key machine-tool components such as index tables and rotary tables, said it would upward adjust product prices by 5% up to 10% in the foreseeable future.

Kao Ming general manager Shih-yu Chang said the upward adjustment in product prices is inevitable as the last price increase was over three years ago, despite steadily rising prices of imported raw materials over the same period of time. He noted that the prices for cast iron rose 45% from NT$32 (US$0.99 at US$1:NT$32.3) per kilogram in April last year to the current NT$45 (US$1.39). It is expected the prices for cast iron would be raised again sometime in March, when the quotations for such stock will break the NT$50 (US$1.54)-per-kilogram mark.

According to Chang's estimate, the additional production cost for each double-column machining center, weighing more than 20 metric tons each, will reach NT$200,000 (US$6,192) in the wake of such price hike in cast iron.

Kao Ming has an annual production capacity of 150 double-column machine tools, which add to its overall production cost some NT$30 million (US$928,790) per year.

Skyrocketing Pig Iron Prices

The skyrocketing prices for imported pig iron from Brazil, said Edward Yang, are twisting the arms of domestic wholesalers, who recently quoted the price for such stock to be delivered in the second quarter of this year at US$545 per metric ton, up 12.3% from three months ago. Adding fuel to fire, the 28.5% increase in coke prices over the past three months, coupled with the rising pig iron prices, have pushed the quotations for cast iron to a recent historic high of NT$45 (US$1.39) per metric ton.

Besides having to deal with the incredible price hikes in imported pig iron from Brazil but also surging quotations for even second-tier pig iron, which is now priced between US$540 and US$550 per metric ton, domestic cast-iron manufacturers have no choice but to source cheaper pig iron.

Faced with spiraling prices of cast iron, the Industrial Development Bureau (IDB) under the Ministry of Economic Affairs recently convened domestic machine-tool and cast-iron suppliers to come up with effective ways to overcome the hurdle, which may be a means to stay profitable. Leading domestic producers of cast iron, including Ying Chieh Casting Co., Chia Sheng Co. and Yuan Run Fong Cast Iron Co., said they are doing everything within their power to source ample raw materials to ensure the steady production of cast iron until the end of the second quarter of this year.

The IDB said it has asked domestic iron and steel firms, including Dragon Steel Corp. and Formosa Heavy Industries Corp., to especially set up production of pig iron so as to help the local makers of machine tools to access a steady supply of raw materials.

Going further than merely pointing the way to alleviate the shortfall in supply of raw materials, the IDB has promised to specially zone an area in central and southern Taiwan to facilitate the dedicated production of cast iron by domestic manufacturers. Such official assistance given by the IDB, meanwhile, will also include helping cast-iron manufacturers to upgrade production: stepping up to using electric arc furnaces from the traditional coking furnaces.

Chien-ying Huang, IDB's section director, said such industrial zone would be set up in Changpin Industrial Park, where plentiful land is available for the cast iron manufacturers to set up production. The IDB will soon ask domestic manufacturers of cast iron to visit the Changpin Industrial Park on a fact-finding trip, and locate appropriate production sites.

Yang also warned that, with cast iron being one of the most critical components for machine tools besides computerized controllers, inadequate or excessively-priced supply of cast iron will seriously compromise the sound development of the domestic machine-tool industry and support sectors. As such, he urged the government to assist domestic manufacturers of cast iron to take on any supply and production-related challenge; after all the machinery industry in Taiwan is designated as one with the potential to generate an annual output of NT$1 trillion (US$30.95 billion) in the future.