Taiwan's Surface Treatment Industry Output Up 6.6% QoQ in Q2

Taiwan's metal industry research body Metal Industries Research & Development Centre (MIRDC) issued its latest report showing the island's surface treatment industry turned out NT$41.2 billion of coated steel plates and metal products in the second quarter of the year, up by 6.6% from a quarter earlier or 7.6% from a year ago.

Some NT$20.6 billion of the total output was exported, mainly to China, the U.S., Thailand, Belgium and Malaysia, and the remaining NT$20.6 billion was for domestic sales.

MIRDC analysts attribute such output growth to robust shipments of surface-treated metal products, indicating that local demand for such services effectively offset declining coated steel plate exports in the quarter due partly to appreciating New Taiwan dollar and partly to underselling by Chinese rivals. Reality is, however, not that promising for the industry as the growth rate shows.

Impacted by the above-mentioned factors, Taiwan's galvanized steel and related products could only command export price of around US$890 per metric ton in the quarter, below even production costs averaging US$950. Left without feasible options, quite a few Taiwanese suppliers declined export orders, resulting in the industry's export orders in April and May dropping to only 40-50% of the total received in March, say analysts.

Worsening Market
The playing field tilts favorably for Chinese rivals, who wield global price advantage backed by tax incentives offered by the government, hence cutting Taiwanese surface treatment industry's exports by about 12% in the first half. The MIRDC adds that Taiwanese companies are left to struggle with such unfavorable odds globally for a while, especially when Indian counterparts plan to dump excess supply in Southeast Asia to cope with unstable markets in the Middle East.

Meanwhile, market inertia in the U.S. and Europe will also worsen industry prospects in the remaining months of the year, with local distributors' inevitable intention to dump inventories hurting spot prices there, say MIRDC analysts. Price drops will also compromise Taiwanese companies' ability to maintain profitability in such markets, with the still lingering debt problems that are undermining local demand.

In addition to shrinking exports of coated steel plates, the industry has also been suffering due to lackluster sales by Taiwan's auto parts industry, whose performance has been undermined mainly by the rising New Taiwan dollar to hence compromise need for surface treatment services in the second quarter.

Good News
Fortunately, MIRDC says, the industry's misfortunes have been offset by rising popularity of smartphones since early this year, when new model launches have generated influx of contract orders from handset parts customers especially in April and May. Such trend will likely help to sustain growth of surface treatment providers in the years to come.

Some are already developing new technologies to further sales in the increasingly promising segment. For instance, Creating Nano Technologies Inc., a plasma and diamond-like carbon film coating company, has developed its newest film coating technology for touch panel glass that resists smudging and fingerprints, with the cost-efficient, nano technology also able to resist rust, stain and acid.

Taiwan Fu Hsing Industrial Co., Ltd., a large metal processor, is partnering with a Taiwanese hard-disc drive manufacturer to set up a factory in China to explore the 3C product parts segment, having already been licensed to engage in electroplating.

Encouraging Development
Despite being routed by Chinese rivals globally, the industry in Taiwan still hopes to keep American buyers, which has become more realistic with the U.S. Commerce Department planning to penalize dumping of China-made galvanized steel wires that had totaled some US$53.9 million last year. MIRDC analysts stress that Taiwanese suppliers will have better access to the American market if the United States International Trade Commission shares the same view as the Commerce Department.

And to protect their interests in Europe, Taiwanese stainless steel manufacturers are lobbying EU commissioners not to impose anti-dumping taxes on their products; while the MIRDC notes such efforts have been properly directed so far, for insiders confirm that the EU does not plan to launch anti-trust investigations of Taiwan-made stainless steel for the moment, which is good news to Taiwanese surface treatment companies because orders will remain stable.

The robust counter-production industry in China also benefits Taiwanese manufacturers amid the current gloomy climate, with the emerging industry strongly backed by the Chinese government to achieve output value exceeding RMB2 billion, say MIRDC analysts. As the industry counter-produces auto engines, gearboxes, power generators, and recycles, retrofits used products, Taiwan's surface treatment industry is expected to profit substantially in the short term.

Q3 Growth
Despite insiders' mixed views of market prospects due partly to waning demand in Europe and the U.S. and partly to increasing rivalry against Chinese counterparts, MIRDC analysts still believe industrial output will grow 5% in the third quarter while also admitting that market outlook for coated steel plates will stay gloomy for several months and that any sizable recovery will depend on expected realization of a boom in consumer electronics as smartphones and tablet PCs.

Output of Taiwan's Surface Treatment Industry
	2008	2009	2010	2011
				Q2		1st Half		Full Year (estimated)
	Value	Value	Value	Value	Q-on-Q Growth	Value	Y-on-Y Growth	Value	Y-on-Y Growth
Output	162.37	105.09	143.55	41.22	6.6%	79.88	10.6%	160.21	11.6%
Export	84.57	55.41	75.05	20.55	9.8%	39.26	-11.6%	79.32	5.7%
Import	21.58	10.97	17.77	4.97	21.2%	9.07	5.7%	17.12	-3.7%
Scale of Local Market	99.38	60.65	86.27	25.64	6.6%	49.69	9.6%	98.01	13.6%

Value Unit: NT$1 billion
Source: MIRDC