Abstract
Low stock inventories and rising demand are raising the price of Taiwanese
steel, with BMI’s latest
Taiwan Metals Report forecasting a recovery
in the industry in H209.
In the first four months of 2009, Taiwan’s
steel output fell 30.9% year-on-year (y-o-y) to 5.07mn tonnes,
with a
deepening of the contraction witnessed in Q408 when output fell 20.5% y-o-y to
4.4mn tonnes.
The international financial crisis and the slowdown in the
Chinese market are continuing to hit Taiwanese
steelmakers. On the upside,
steelmakers were undercutting Chinese producers’ prices with a price
of
US$420 fob per tonne of rebar compared to China’s US$455-495 and
Japan’s US$445-450 in mid-May.
Taiwanese steelmakers were able to
offer cheaper prices because they bought cheap scrap and billet in
Q109.
Taiwan-based China Steel Corporation cut its list prices three times in H209
with an average cut
of 22.56% Q109, a further 14.03% for April and May and
9.41% in June as it sought to compete with
Chinese producers. This meant
that for many products, it was selling at below cost price in order to
support its clients over the short-term.
BMI notes that the steel market
situation in Taiwan has improved as stock inventories had, by Q209, been
largely depleted and demand in some segments had started to recover. Reports
in May and June suggest
that, at the very least, the market had reached
– and perhaps passed – its low-point, and from there the
only
way is up. Taiwan’s leading coating steel mill, Sysco, and cold roll
steel mill, Kao Hsing Chang,
announced their production had been ramped
back up to full capacity in June, although low order prices
mean that they
are expected to see profits diminish further in Q209. BMI expects a recovery
to begin in
H209, with rising prices likely to enable steelmakers to boost
profitability.
BMI believes the poor overall performance in China and
other Asian markets will lead to a 23.2% drop in
steel exports to 7.47mn
tonnes. Combined with the deterioration in domestic demand, steel output
is
forecast to drop by 23.4% to 15.47mn tonnes in 2009, not helped by the
continuing decline in the value of
the Taiwanese dollar, which is raising
the cost of imported raw materials. The Taiwanese steel industry
has
passed its low-point and BMI has raised its crude steel growth forecast for
2010 from 3.8% to 8.6%.
Based on these uncertainties and continuing
lacklustre performance in the domestic market, BMI does not
believe that
steel output will fully recover to the 2007 peak within the next five years.
By 2013, output
should reach 20.31mn tonnes – just 0.5% up on 2008.
However, a projected improvement in steel prices
should see production in
value terms reaching US$18.59bn, an increase of 4.2% over 2008. Growth
should be stimulated by exports as the Chinese market revives, while the
domestic market will lag behind.
BMI believes exports will reach 9.84mn
tonnes by 2013, when 2008 levels will be exceeded for the first
time since
the recession began. Nevertheless, there is long-term optimism, with CSC
continuing to invest
in the expansion of its Dragon Steel subsidiary,
including a 2.5mn tonnes per annum (tpa) blast furnace
complex due to open
in H209 and a 3mn tpa hot strip mill by mid-2010, with a view to raising its
capacity
to 4mn tpa in a second phase construction.
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