Lewes, DE -- (ReleaseWire) -- 04/02/2014 -- Taiwan's metal producers are feeling the effects of overcapacity across the global metals sector. In particular, we highlight continued overcapacity in the global steel market and the effects this is having on Taiwan's major steelmakers. The Q214 Taiwan Metals reports analyses the outlook for the sector to 2018 and highlights the strategies companies are employing to protect themselves from continued fluctuation in steel prices and demand.
The Taiwanese steel industry remains constrained by the ongoing impact of Chinese oversupply on the global steel sector. Research expects global prices for the commodity to remain weak over the foreseeable future, which will continue to limit Taiwan's steel production levels.
Continued uncertainty surrounding China's economic outlook coupled with global overcapacity will continue to have a detrimental impact on Taiwan's steel production over the next few years. Our Country Risk team have a downbeat forecast for 2014 Chinese GDP growth, at 6.7%. Despite these headwinds, output is expected increase by an annual average of 2.1% during the five-year period to 2018, bringing to an end the volatile swings in output seen since 2007.
Efforts are underway to improve the competitiveness of the steel industry. China Steel Corporation (CSC) is looking to improve profitability in an increasingly difficult market. CSC is Taiwan's largest steelmaker, with over 50% of the domestic market. With this in mind it is undertaking reconstruction of its continuous annealing line, which is expected to help produce better products with lower costs and using less electricity. CSC increased its production capacity from 12.5mn tonnes per annum (mntpa) to 15mntpa in 2013 as the company completed the expansion of its wholly owned subsidiary, Dragon Steel. Given our negative view on the Chinese economy, it remains to be seen whether CSC will be able to profitably use the additional capacity.
As overcapacity continues to bite, steelmakers will continue to come under pressure to reduce prices in order to compete on a global level. However, in Q114, CSC was one company bucking the trend by announcing its decision to increase local steel prices for the April-May period, having already introduced a price hike for March. Companies are expected to keep a close eye on their price strategies over the coming months, particularly given the ongoing volatility in global iron ore prices.
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