Taiwan Metals Report Q1 2013

BMI's Taiwan Metals Report for Q1 2013 looks at domestic infrastructure spending in Taiwan and howthis will affect the prospects of the country's steel makers in 2013. We expect a stronger 2013 for theindustry after a very weak 2012.

The Taiwanese steel industry is bearing the full brunt of the slowdown in Asian markets with the worstperformance in the region so far this year. Taiwanese crude steel production volumes fell 9.8% year-onyear(y-o-y) to 17mnt (million tonnes) in the first 10 months of 2012. The industry was not only dealtvolume decreases but also price declines given how steel prices in the region performed during the latterhalf of 2012.

Efforts are underway to improve the competitiveness of the Taiwanese steel industry. The China SteelCorporation (CSC) is looking to improve profitability in an increasingly difficult market environment.CSC is Taiwan's largest steelmaker, with over 50% of the domestic market. With this in mind it isundertaking reconstruction of its continuous annealing line, which is expected to help produce betterproducts with lower costs and using less electricity.

BMI reports the following forecasts/views:

The trend year-to-date supports BMI's forecast of a 7% decline in output to 21mnt for the 2012full year. The downturn in the steel industry is directly related to the fall in orders from China aswell as declining domestic manufacturing production.

Taiwan's steel industry will recover from in 2013 with growth of around 5% as domesticinfrastructure spending will serve to soak up demand. Capacity expansion and a focus onincreasing product value and efficiency savings should support growth and improve profitability.

CSC is set to increase its production capacity from 12.5mn tonnes per annum (mntpa) to15mntpa by the beginning of 2013 as the company completes the expansion of its wholly ownedsubsidiary, Dragon Steel. Given our negative view on the Chinese economy, it remains to beseen whether CSC will be able to profitably utilise the additional capacity.