Taiwan Steelmakers' Production Rises 17.4% in Q2

With global industrial production strongly rebounding earlier this year and global steel prices hitting 2010-highs in May, Taiwan's steelmaking industry also rode the wave of recovery in the second quarter, trickling down clear gains to its downstream sectors.

The ITIS (Industry & Technology Intelligence Service) figures show the industry's overall output totaled NT$366.67 billion in the quarter, up 17.4% over that in the first quarter or 68.6% more than a year earlier; and NT$133.34 billion of which were exports, up 14.4% quarterly or 42.9% yearly.

Taiwan steelmakers' hottest sellers overseas in the second quarter were steel coils and sheets, including hot-rolled, cold-rolled and galvanized products, with the top-three markets being China, Malaysia and Hong Kong, which together absorbed 37.3% of the industry's total exports during the period, according to the ITIS report.

Taiwan's steel sector also imported NT$107.12 billion of various steel products in the quarter, up 25.4% quarter-on-quarter and 115.9% year-on-year, with 39.7% from Japan, 24.4% from China and 15% from South Korea, according to the ITIS. The products in the highest demand were hot-rolled steel coils, medium and thick steel plates and galvanized steel coils and sheets.

The scale of Taiwan's steel market also doubled to NT$340.36 billion in the second quarter relative to that of last year, up 21% from NT$280.2 billion in the first quarter.

Significant Events
China Steel Corp., the largest steelmaker in Taiwan, restarted its No. 1 blast furnace in June after five months of maintenance, as part of its output expansion. With five blast furnaces operational, the firm is expected to churn out over 13.5 million metric tons of molten metal a year.

Furthermore, the board of China Steel also approved an investment totaling NT$21.9 billion in the quarter, with NT$14.3 billion to be spent on adding production lines for electro-galvanized steel sheets, NT$5 billion on maintenance of its No. 4 blast furnace, NT$1.7 billion and NT$900 million on construction of new warehouses for wire rods and semi-finished hot-rolled steel products, respectively.

Noteworthy is that the firm has been focusing on production of electro-galvanized steel sheets as a major eco-friendly step, for the product features better wear resistance and higher magnetic flux, hence being widely applied in high-efficiency motors. Hopefully, such product will help CSC sustain business development, says

ITIS.

Also, China Steel's Taiwanese peer Walsin Lihwa Corp. has also decided to invest NT$15 billion into capacity expansion in the next three years, including NT$4 billion to build a new pickling plant on the island and NT$3 billion to upgrade production processes in its steelmaking factory in Shandong, China.

While the two Taiwanese leading steelmakers' projected capacity expansions reflect their optimism toward the global steel market in the coming years, worries over economic uncertainty dampened such upbeat outlook near the end of the first half of the year.

Chien Shing Stainless Steel Co., Ltd., however, had been plagued by operating losses, due partly to China's moves to cool its overheated real estate market in April, and partly to plummeting stainless steel prices, forcing the company to shut down production for nearly two months from July until mid-August.

Positive Effects of ECFA
The ECFA (Economic Cooperation Framework Agreement) signed between Taiwan and China on June 29, 2010 will surely positively impact Taiwan's steelmaking industry as it explores the Chinese market, ITIS says.

After extensive negotiations between the two sides, 22 kinds of Taiwan-made steel products, such as hot-rolled, cold-rolled and galvanized steel coils, stainless steel and electro galvanized steel coils, are included in the so-called “Fast-tracked Early Gainers List,” with 539 Taiwan-made goods and services to be allowed for export to China duty-free two years later.

According to statistics compiled by the Taiwan Customs, the 22 steel product categories exported to China generated sales of US$1.08 billion for Taiwan's steelmaking industry in 2009, or 43% of the total. Based on such revenue figure, Taiwanese makers can expect to save an estimated US$60 million in duties exporting to China in 2012. With the duty-free advantage, ITIS says that Taiwanese makers can tap the vast Chinese domestic market to offset inventory risks more easily than before, especially when the local market suddenly cools.

In addition, the ECFA enables Taiwanese steelmakers to better compete against their Japanese and South Korean counterparts on price, increase willingness of Taiwanese enterprises operating in China to purchase steel materials from Taiwan, hence enabling local steelmakers to keep operations on the island.

Recovery Slows
ITIS indicates that, after several months of very rapid growth, industrial production in the major economies, including the U.S., Canada, the U.K., Brazil, France, Italy, China and India, has evidently waned since the end of the first half, intensifying worries about global economic uncertainty in the second half.

The ITIS expects, amid the slowdown, the overall output value of Taiwan's steelmaking industry to edge down to NT$311.7 billion in the third quarter from the second quarter, with the export value to drop to NT$91 billion. However, buoyed by strong performance in the first half, the industry's output value will surge 43% for the year to NT$1.3749 trillion, with exports to rise 36.5% to total NT$548 billion.

Key Figures of Taiwan's Steelmaking Industry
	2009	Q1, 2010	Q2, 2010		Q3, 2010 (estimated)	2010 (estimated)
	Value	Value	Value	Y-on-Y Growth	Value	Value	Y-on-Y Growth
Output	961.4	312.4	366.7	17.4%	311.7	1374.9	43%
Export	401.5	116.6	133.4	14.4%	113.3	548.0	36.5%
Import	250.1	85.4	107.1	25.4%	91.0	390.1	56%

Source: ITIS

Global Composite Steel Prices and Index (Jan. 2009-Aug. 2010)
Month	Carbon Steel (US$ per metric ton)	Carbon Steel Price Index	304-graded Stainless Steel (US$ per metric ton)	304-graded Stainless Steel Price Index
Aug-2010	746	187.0	3471	184.9
Jul	732	183.5	3489	185.9
Jun	757	189.7	3721	198.3
May	798	200.0	3690	196.6
Apr	773	193.7	3431	182.8
Mar	693	173.7	3146	167.7
Feb	673	168.7	3023	161.1
Jan-2010	653	161.9	2912	155.2
Dec	634	158.9	3053	162.7
Nov	627	157.1	3043	162.1
Oct	646	161.9	3076	163.9
Sep	642	160.9	2949	157.1
Aug	611	153.1	2793	148.9
Jul	585	146.6	2489	132.6
Jun	578	144.9	2348	125.1
May	562	140.9	2110	112.5
Apr	566	141.9	2091	111.4
Mar	582	145.9	2098	111.8
Feb	639	160.2	2291	122.1
Jan-2009	676	169.4	2499	133.2

Source: MEPS (International) Ltd.