Mainland China Offers Lucrative Opportunities to Taiwan's Metal Industries

ECFA, Five-Year Plan open the gateway for closer cross-straits business ties

For Taiwan's metal-processing industries, the attraction of mainland China extends far beyond its vast market and rich metallic ore resources. The mainland's 12th Five-Year Plan and the Economic Cooperation Framework Agreement (ECFA) between the mainland and Taiwan have created new golden opportunities for the island's manufacturers.

The mainland is currently the world's No. 1 producer of magnesium ore, with an output of 830,567 metric tons in 2010, up 24.6% from 2009, according to China's National Bureau of Statistics. China is also the world's biggest producer of titanium sponge, the basic material for making titanium products, with an output of more than 92,000 metric tons last year.

The mainland is a big consumer as well as producer. In 2010 it used 7.43 million metric tons of electrolytically refined copper; this was over 40% of global consumption, making the mainland the world's biggest market for copper. The mainland's consumption of stainless steels is estimated to reach 670-750 million metric tons during the 12th Five-Year Plan years (2011-2015). According to the Special Steel Enterprises Association of China (SSEA), the mainland consumed 9.4 million metric tons of stainless steel in 2010, up 14.36% from the previous year.

With around a third of the world's rare earth metal ores and 97% of global supplies, mainland China is undoubtedly the top in this field.

The 12th Five-Year Plan has set ambitious goals for these metal industries. The mainland is determined to upgrade its magnesium-material technology and establish a magnesium-application industry with economies of scale. Car-making has been chosen for this effort, inspiring manufacturers to develop magnesium alloy, die-cast magnesium parts, magnesium sheets, magnesium profiles, and manufacturing crafts.

Taiwan's nonprofit Metal Industries Research and Development Center (MIRDC) says that the mainland's magnesium industry policy stresses economies of scale, technology upgrading, application coverage, and new industry standards. It suggests that Taiwan's magnesium-product manufacturers should use the mainland's less-expensive raw magnesium materials to turn out a diversified range of high-quality products so that they can enter the supply chains of mainland industries, which are expected to make considerable progress in both quality and quantity under China's aggressive industry plans.

Although the mainland is recognized as the world's top supplier of titanium sponge, it is still behind the United States, Russia, and Japan in titanium-processing technology.

The 12th Five-Year Plan includes a titanium-industry strategy that stresses the development of a new generation of titanium alloy for the aircraft industry, the development of advanced processing technologies to cover more high-end titanium products, and the reduction of costs to make titanium materials acceptable to the sporting goods and auto industries.

The Need for Complementary Manufacturing
The MIRDC points out that the mainland's mega programs for the aerospace industry, railway stations, nuclear power plants, oceanic engineering, and civilian engineering will surely enhance the technology and quality of its titanium industry. It suggests that Taiwan's manufacturers in the field should move from end products to commercial products before the mainland's homegrown technologies for commercial applications have matured. In addition, instead of trying to replace their mainland counterparts, Taiwan's manufacturers should develop complementary supply-chain ties with the mainland's manufacturers.

The mainland's consumption of electrolytically refined copper is unmatched in the world; but it can supply barely half of its own needs, and it produces enough copper ore for only one-fourth of its refined-copper production.

The 12th Five-Year Plan lays down copper-industry guidelines to maintain consistent product quality by preventing rampant expansion. During the years of the plan China's production of copper will be kept within 6.5 to 7 metric tons, and product quality will be stressed.

In the MIRDC's analysis, the mainland's demand for nonferrous metals, including copper, will surge during the Five-Year Plan period along with plans to boost the electric-car, clean-energy, new-materials, environmental-protection, and information-technology industries. The MIRDC suggests that Taiwanese copper-product manufacturers operating in the mainland shift their attention from overseas sales to the domestic Chinese market. For those who have not set up operations in the mainland, the Center suggests that they use ECFA to do so.

The 12th Five-Year Plan will also boost demand for stainless steel; and ECFA, the MIRDC suggests, can help boost Taiwan's shipments of that material to the mainland under the preferential tariffs provided by that agreement.

The five-year plan regulates the rare-earth industry in a way designed to curb wild exploration and exports. The Chinese State Council has made it clear that in one to two years the mainland will set up a strategic storage system for rare earths as well as a system for separating the exploration, refining, and distribution of the products. Beijing will spend another three years to enhance the industry's added value by developing a complete supply chain that covers development, manufacturing, technology, and application.

According to the MIRDC, Taiwan needs around 3,000 metric tons of rare earths a year, mostly to produce motor magnets, polishing powder for optical lenses, and catalysts for petrochemical manufacturing. The Center points out that the volume may not be significant, but Taiwan's manufacturers should make the most of the increasingly friendly business tie between Taiwan and the mainland to secure sources of rare earths at a time when the mainland seems to be curtailing its exports. Taiwan's manufacturers should use the mainland's rare earths to develop high-end products for international markets, the MIRDC believes.