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Taiwanese electric arc furnace (EAF) mills feeling the impact of low-priced billet imports from China have so far turned to just a few available options to fight back.
This includes lobbying for governmental support, cutting costs and taking advantage of the prompt availability of domestic scrap in the East Asian island.
In order to further improve its competitiveness amid the ongoing steel market slump, Feng Hsin has decided to replace its existing 600,000-tpy rebar mill with a brand new piece of equipment of the same capacity.
“The rebar mill we have right now is already some 30 years old, so it doesn’t have any competitive advantage anymore,” Lin told Steel First.
Improving efficiency The new mill, expected to cost about NT$2.5 billion ($76 million), will come with an induction heating system instead of reheating furnaces traditionally used in steelmaking plants around the world.
With this energy-saving technology – which is already being used by a few other Taiwanese mills – hot billet is fed directly from the caster into the rolling mill through an induction reheater that uses electric power.
“There is no heavy oil consumption in the induction system, so not only will we save operational costs but we will also lower our carbon emissions,” Lin said.
Feng Hsin estimates that it will save some NT$500 ($15) per tonne of cost in its rebar operations once the new mill is up and running in 2017.
Tighter market Improving the competitiveness of its rebar business will be key to Feng Hsin, especially since domestic demand for the long steel product has been shrinking over the past few years.
Moreover, most of the billet imported from China is used by Taiwan’s re-rollers and some of its EAF mills to produce rebar, making price competition even more intense.
“In Taiwan, the consumption volume for rebar is going down.
“Our normal demand for rebar is now 5-6 million tpy, versus a peak of 7.2 million tonnes a few years ago,” Lin said.
For other long steel products, the situation has been a bit better in the domestic market, especially in the case of sections.
Apart from its 600,000-tpy rebar mill, Feng Hsin also operates a 700,000-tpy section mill and a 500,000-tpy bar mill, which take its total capacity to 1.8 million tpy of finished steel.
This is matched by its two EAFs’ total crude steel capacity of 1.8 million tpy. Falling sales Despite the past few challenging years for the steel market, Feng Hsin had managed to keep its steel shipments and financial results steady.
In 2014, it shipped 1.61 million tonnes of finished steel and recorded revenues amounting to NT$30.17 billion ($923 million) and an operating profit of NT$1.8 billion ($55 million), up from 1.54 million tonnes, NT$29.89 billion ($914 million) and NT$1.62 billion ($49.5 million), respectively, in 2013.
This year is proving to be a tougher year though, with shipments falling to 1.1 million tonnes in the first nine months from 1.2 million tonnes in the corresponding period of 2014.
Sales revenues dropped to NT$17.93 billion ($548 million) from NT$22.68 billion ($694 million) in the same comparison, though its operating profit rose to NT$1.51 billion ($46 million) from NT$1.27 billion ($39 million).
“What we’re forecasting is that sales volume will be down 20-30% this year compared with 2014.
“And we believe the situation will be similar in 2016,” Lin warned. Export strategy Amid the deterioration of Taiwan’s domestic market this year, mills have little choice but to increase their exports.
Feng Hsin is no different, Lin conceded.
“In the past, we used to export less than 10% of our sales, but now the share is 10-15%,” he said.
The problem is that mills in Taiwan and those elsewhere need to compete with Chinese mills in the international market, and “you can’t beat China at any price”, Lin pointed out.
“So our strategy right now is to export small-volume and large-variety cargoes.
“For example, small volumes with a complex mix of steel products: different grades, different sizes and different packing in a single deal,” he said.
“The Chinese will always win and it’s easy for them to win in volume and price, but in this kind of situation, they just give up,” he said. “This is too small, they don’t want it, they just pass on it.”
Feng Hsin has been employing this strategy with buyers in Singapore, Australia, Hong Kong and Malaysia, among other markets.
Staying put Besides increasing their exports, a number of Taiwanese steelmakers have been venturing abroad in recent years.
For instance, Tung Ho Steel – the island’s biggest EAF producer with the capacity to produce crude steel at a rate of 2.5 million tpy – recently announced that it would pay NT$1.43 billion ($44 million) for Fuco Steel Corp, an EAF mill in Vietnam that can produce up to 1 million tpy of billet.
Formosa Plastics Group, a Taiwanese industrial conglomerate, is close to seeing its subsidiary Formosa Ha Tinh Steel commission a 7-million-tpy blast furnace mill in Vietnam that will become Southeast Asia’s largest steel plant.
And China Steel Corp, Taiwan’s biggest steelmaker, is planning to build a joint venture steel plant in Indonesia, which would add to its existing facilities in Malaysia and Vietnam.
But Feng Hsin is staying put.
It had commissioned studies in the past on the feasibility of venturing abroad but found that the business culture in some Asian countries was “not our style”, Lin said.
Among the prospective countries that it had been eyeing were China, India, Malaysia and Vietnam.
“We met some difficult cultural differences in some of these countries and decided not to move abroad,” he said.
“We decided to focus all our resources on Taiwan – that way it’s easier to manage.”
‘Japanese style’ In addition to investing in its new rebar mill, Feng Hsin also plans to spend some NT$500 million ($15 million) over the next two years to revamp its 500,000-tpy bar mill in Taiwan and increase the quality of the final product.
As for the way it conducts its business, there is no expected change ahead, Lin said.
Despite having the second largest crude steel capacity among EAF mills in Taiwan – behind Tung Ho Steel – market participants in Taiwan and abroad have actually been looking to Feng Hsin for price reference over the past several years.
Why is that?
“We have a meeting every Monday morning with all the people in charge where we look at international scrap prices and the demand situation in Taiwan, and then come up with what to do next to adjust our purchasing scrap prices and our selling prices for steel,” Lin explained.
“Tung Ho has bigger capacity than us, but we have a completely different business philosophy when it comes to managing our customers,” he said.
While Tung Ho focuses on sales to construction firms and other end-users, Feng Hsin sells most of its products to a chain comprising some 20 independent dealers all across Taiwan, who in turn process and sell the products to end-users.
This is a similar way of doing business as Japanese mills such as Tokyo Steel, whose scrap purchase prices and steel selling prices are also followed closely by the market and used as a reference.
“We’re more likely to be considered as having a ‘Japanese style’,” Lin said, “and that’s why people tend to look at us in terms of price reference.”
In the first segment of this two-part interview, Michael Lin spoke about the controversy surrounding Chinese billet exports and their impact on the Taiwanese market.