Taiwan’s Major Steel Expansions’ Risk for Oversupply

China Steel Corporation of Taiwan decided to build second steel works to clear the upper stream bottleneck. The new works could help the country to meet the domestic steel consumption. However, another major steel project could result in oversupply for the country along with potential surging import from China with overcapacity. CSC’s bottleneck is steel supply shortage of the group’s Chung Hung Steel Corporation. CSC purchases annual 1.8 million tonnes of steel slab from Sumitomo Metal Industries to use mainly at Chung Hung Steel. However, the group still needs steel source more. CSC consumed more than 700,000 tonnes of 1.8 million tonnes slab from Sumitomo Metals in 2005 to cover outage under relining of no.2 blast furnace. Chung Hung Steel produced 2.38 million tonnes of products including hot coil and cold coil with 1 million tonnes of slab from Sumitomo Metals and around 1.3 million tonnes of purchased slab from Russia, Brazil and China. The group purchased annual 3.1 million tonnes of semi-finished steel from third parties.The firm constructs a blast furnace, a coke oven, 2 converters and a continuous slab caster with annual 2.5 million tonnes of raw steel output capacity as the first phase for 78.8 billion New Taiwan Dollar in the land held by the group’s Dragon Steel Corporation. The firm starts the construction in early 2007 starting the blast furnace operation by the end of 2009.CSC’s downstream operation has annual 12 million tonnes of rolled products output capacity against 11 million tonnes of raw steel capacity. CSC will fill the 1 million tonnes gap with the new steel source from the second works. CSC apparently allocates 1.2 million tonnes of slab from the new works for Chung Hung Steel. Another 300,000 tonnes of pig iron is shipped to Dragon Steel.CSC plans to expand the second works to annual 5 million tonnes of raw steel output capacity after 2010. The additional steel output will lift the country’s output to 25 million tonnes, which can meet the domestic steel consumption. Some local steel interests concern the additional steel output could results in oversupply when China keeps expanding capacity. However, Formosa Plastics Corporation has the plan to build 7 million tonnes of steel works as the first step and another 7 million tonnes for the second phase. The potential overcapacity could suffer the country’s steel industry.