Posted on 04 December 2007

 

Source: CENS, December 3, 2007
The China Steel Corp. (CSC), the biggest supplier of steel products in Taiwan, recently announced that domestic prices would be increased for hot-rolled and cold-rolled steel, wire rods, steel plates, electrical steel coils, and hot-dip galvanized and galvannealed steel coils in the first quarter of 2008.

The upcoming price increases have already had an impact on midstream and downstream suppliers such as screw and ship makers, and will surely force them to either slash their profits or increase their own prices of finished products in the near future. Some, including makers of steel tubes, motors, and electroplated products, said that they will try to persuade their clients to accept increased prices.

CSC chairman Lin Wen-yuan reported that in response to increasing international steel prices and with respect for the market mechanism, the company decided to increase prices nominally on certain products in a way that is expected not to cause inflation in Taiwan and to help midstream and downstream suppliers stay competitive.

The price of CSC`s wire will rise by an average of NT$1,800 per metric ton, which is higher that some suppliers had expected. The projected increase has already driven some companies, including Tycoons Group Enterprise Co., Feng Hsin Iron & Steel Co., Quintain Steel Co., and Yieh Hsing Enterprise Co. into a consensus on hiking the prices of their products by an average of at least NT$1,500 per metric ton in December.

Bruce Sun, chairman of the Taiwan Industrial Fastener Institute, said that prices of Taiwan`s screws and nuts made of low-carbon steel are nearly US$100 per metric ton higher than made-in-China equivalents. He worries that further price increases may cause Taiwanese makers to lose market share to Chinese suppliers in the United States.

Fan Kuang-nan, president of the Taiwan International Shipbuilding Corp., noted that his firm orders 200,000 metric tons of steel plate from the CSC every year and that an increase of NT$2,080 per metric ton in the cost of steel (which accounts for about 10% of the overall cost of building a ship) will boost the company`s costs by at least NT$200 million annually. This will inevitably have an impact on profit.

Price Hikes to Add NT$2 B. to Q1 Sales

Based on CSC`s quarterly shipments of between 2.2 million and 2.5 million metric tons, the projected rise of 5.42% on average in the prices of its steel products will add about NT$2 billion to the steelmaker`s revenues in the first quarter of next year.

Even at their higher prices, however, the CSC`s products will still be selling for less than international prices, so there will be room for further price hikes in the future if the market situation warrants.

CSC executives noted that however the prices of raw materials such as iron ore move in the first quarter of next year, the company`s cost structure will not be affected very much thanks to ample inventories.

Institutional investors are optimistic about the CSC`s sales performance next year, expecting the price increases to boost the firm`s pretax profits to between NT$14 billion and NT$17 billion in the first quarter.

World`s Steel Market to Remain Strong Till 2010

After suffering a recession in 2001, the global steel market bottomed out and began recovering in the past two years, with prices being pushed upward by strong demand from China. Analysts from Taiwan`s Industry & Technology Intelligence Services (ITIS), a market research institution, predict that thanks to continuous mergers and acquisitions among suppliers around the world, the steel industry`s performance outlook is rosy up to 2010.

According to an industrial report issued by ITIS, global demand for steel products will amount to 1.198 billion metric tons this year, up 6.8% over last year, and will further grow by 7% to 1.279 billion metric tons in 2008.

Among countries with strong demand for steel this year and next are India, China, Saudi Arabia, Iran, Russia, Turkey, Brazil, and Mexico, with the first four all posting annual growths of over 10% in steel consumption, according to the ITIS report.

ITIS pointed out that in general, steel manufacturers tend to carry out acquisitions whenever a recession hits the industry. The resurgent market of the past few years has bucked this trend with surprising wave of mergers all over the world, in which quite a few large steel firms have acquired small and medium-sized companies in the Asia-Pacific, Central and Western Europe, and Latin America.

Prices of China Steel Corp. Products

Items	Price Increase in Q1 2008 (Per Metric Ton)	Nominal Price in Q1 2008 (Per Metric Ton)
Steel Plate	NT$2,080	NT$23,210
Wire Rod	NT$1,800	NT$19,800
Hot-rolled Steel	NT$700	NT$18,700
Cold-rolled Steel	NT$630	NT$21,070
Electrical-galvanized Steel Coil	No	NT$25,850
Electrical Steel Coil	NT$1,100	NT$22,600
Hot-dip Galvanized and Galvannealed Steel Coil	NT$630	NT$27,350

 

 

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