Power price hike forces Taiwan steel mills to plan sharp cut in summer production

Steelmakers in Taiwan are planning for severe production cuts this summer amid a surge in electricity costs starting in April, coupled with dismal steel demand in the spot market, sources have told Fastmarkets

Taiwan’s Ministry of Economic Affairs (MOEA) announced on March 17 that certain households and companies will see their electricity rates rise by 3-17%, effective from April 1.

Industrial producers that use high voltage and ultra-high voltage – such as steel mills – will have to pay 17% more for electricity, while smaller companies that use low-voltage electricity will see prices rise by 10%, according to the ministry.

Price increases will be halved for industrial users whose electricity consumption fell by 10% or more in the second half of 2022.

Due to high fuel prices globally, the state-run utility company, Taiwan Power (Taipower), has been under pressure financially. This round of electricity price increases will reflect current fuel costs, according to the MOEA.

The government’s stance on nuclear power is probably another reason for increase in power generation costs in Taiwan. Taiwan’s plan is to phase out nuclear power by 2025.

A mill source in Taiwan

Taiwan imports approximately 98% of its energy. Phasing out nuclear power may lead to an increase of more than 10% in electricity prices, according to estimates by the World Nuclear Association.

During the summer season, which usually starts in June, demand for electricity in Taiwan is higher because of the need for air conditioning units. The government, therefore, charges mills much higher electricity rates if they run during the daytime.

Mills also get a subsidy from the government if they only produce during off-peak periods. Therefore, most mills will reduce production or not produce at all in the daytime in summer, according to market sources.

Reductions to summer steel production still possible

Due to the further increase in electricity costs, market sources think that Taiwanese mills may need to reduce steel production this summer by more than usual, especially when downstream demand for steel products will likely remain weak in the short term.

“This year we are going to adopt our summer production schedule from May rather than June. From mid-May to mid-October, we will not produce during daytime,” a source at a major Taiwanese mill told Fastmarkets.

“Summertime production may be reduced further this year, but the exact impact of this round of electricity price increase is not certain. It is the first time in recent years that the government decided to raise electricity rates before the electricity rationing season,” a third mill source in Taiwan said.

But market sources believed that even if the hike in electricity cost leads to more production decrease than in previous years, it won’t have a large impact on finished steel prices.

“A 17% increase in electricity cost is quite a lot. But it may not be possible for mills to raise their finished steel prices to reflect this part of cost increase due to weak steel demand in Taiwan,” a Taiwanese trading source told Fastmarkets on Wednesday, March 29, “Major mills have all been lowering their rebar sales price continuously in the past two weeks. They are more likely to push for lower scrap purchase prices to save costs.”

“People are not optimistic about downstream demand for rebar in the short term. Some mills already reduced their production capacity even before the summer season. Finished steel sales are still too slow in Taiwan,” a buying source in Taiwan said.

The buyer sources added: “We heard that some mills are not going to stock up on billet for their production this summer. They don’t think there will be any large improvement in steel demand in the near term.”

Greater pressure on steel scrap prices

Indeed, scrap prices in Taiwan have continued to drop due to bearish sentiment in the local market.

A major electric-arc furnace (EAF)-based steelmaker dropped both its rebar sales price and domestic scrap buying price by NT$300 ($9.88) per tonne for the week starting Monday, March 27.

In total, the EAF mill has dropped its rebar price by NT$500 per tonne and its scrap price by NT$800 per tonne since Monday, sources told Fastmarkets.

In the import market, Fastmarkets’ latest daily price assessment for containerized steel scrap HMS 1&2 (80:20 mix) US material import, cfr main port Taiwan was $395-400 per tonne on Thursday, March 30, unchanged day on day but down by $20 per tonne week on week.

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