Taiwan Service Center to the World Glenn Sachko Global Stainless Steel Inc. June 2013
Outline Global Stainless Global group Overview Export experience Taiwanese Production (2002-2011) Domestic Production Import/Export - Consumption CR/HR - Import/Export Welded Tubes Major Importers Major Exporters China mainland vs Taiwan Market Differences CRC - Costs CRC - Production Inflation - Currency Effects Chinese Exports - (2005-2013) Flat Products Long Products Conclusion Taiwanese Service Centers Mill vs Service Centers Advantages Disadvantages
Global Group of Companies Structure G.S.S.I. (TORONTO) Master Distribution And Stockists CLEVELAND METALS (CLEVELAND) End-user secondary sales only GLOBAL STAINLESS PRODUCTS (DETRIOT) Distribution and end-user Slitting Alabama Stainless and Storage (MOBILE) Distribution Storage and Processing Global Tube Company (Cambridge, Ontario) Master Distribution of Ornamental Tube Sales
Company Overview Offices and Markets Distributor and processor to end users and other service centers in 20 countries, selling stainless and aluminum products Offices Locations: Toronto/Cambridge Chicago/Mobile Dubai, U.A.E Shanghai, China Sheffield, England Genova, Italy Sydney /Montreal /Cleveland Service Centers: Detroit, Michigan Mobile, Alabama - USA, Twinsburg, Ohio. - Cambridge, Ontario Canada 4 tube mills, 5 slitting machines, 2 cut to length machines, and a Temper Rolling Mill Annual sales combined in Tonnage of 40,000 MT, combined between CME and GSSI. includes Prime and Secondary Flat-rolled Products in 300 and 400 series into 20 countries Main Markets Served: USA, Canada, Australia, England, Italy, Turkey, Taiwan, China, Pakistan India, Holland, Belgium, and the Middle-East
GSSI export experience
Taiwan Experience
Taiwanese Production
Domestic Production Company 200 series % 300 series % 400 series % YUSCO (HR&CR) Tang Eng (CR) Tung Mung (CR) Chia Far (CR) 20 50 30 5 95 - - 90 10-25 75
Taiwanese STS import/export/consumption ( 000 t) 2002 2004 2006 2008 2010 2011 Production 1425 1574 1711 1112 1460 1162 Import 390 531 514 407 707 949 Material available 1815 2105 2225 1519 2167 2111 Export 1145 1255 1428 1178 1369 1403 Apparent consumption 670 850 797 341 798 708 Production peaked in 2006 Consumption peaked at 2004 but declining Export is expected to rise a little
Hot rolled ( 000 t) 2002 2004 2006 2008 2010 2011 Export 357 348 307 109 154 114 Import 210 312 289 208 452 670 Total exp/imp 567 660 596 317 606 784 Net difference 147 36 18-99 -298-556 Exports shrunk 240kt Imports rose dramatically at 460kt Domestic HR production replaced by import, for consumption and rerolling
Cold rolled ( 000 t) 2002 2004 2006 2008 2010 2011 Export 509 546 600 567 731 757 Import 67 73 72 81 147 158 Total exp/imp 576 619 672 648 878 915 Net difference 442 473 528 486 584 599 Exports still rising Materials being imported for re-export Export-oriented service centers keep growing
Welded tubes ( 000 t) 2002 2004 2006 2008 2010 2011 Export 60 84 123 135 134 154 Import 0.6 1.3 1.3 0.6 0.9 0.9 Total exp/imp 60.6 85.3 124.3 135.6 134.9 154.9 Net difference 59.4 82.7 121.7 134.4 133.1 153.1 Very successful in export and it has continuous growth. Export-oriented product
Major importers 2002 2004 2006 2008 2010 2011 Japan 155 167 138 128 150 144 Korea 30 110 116 105 212 165 China 4 20 67 64 217 544 Total of the big 3 189 297 321 297 579 853 Import % 48.46% 55.93% 62.45% 72.97% 81.90% 89.88% The top 3 importers represent 90% of total imports of Taiwanese materials China mainland has risen imports into Taiwan by 500kt in last 5 years. A big jump last year because of the new import tax policy. (no import tax from Taiwan into China mainland.) Net imports continue to rise
Major export destinations 2002 2004 2006 2008 2010 2011 EUROPE 72 106 168 128 177 213 USA 72 74 119 115 95 100 SOUTH AMERICA 14 12 26 61 82 98 KOREA 53 62 117 109 150 126 CHINA 157 403 476 187 167 131 HONG KONG 634 359 176 106 90 70 OTHER ASIA 38 67 123 179 233 255 TOP 7 MARKETS 1040 1083 1205 885 994 993 IMPORT % OF TOTAL 90.83% 86.29% 84.38% 75.13% 72.61% 70.78% China + HK exports are down from 800k to only 200k New markets found: South America/other Asia/Europe Negative export since 2006 Export diversifying away China and spreading worldwide
Taiwanese Service Centers
Mill Vs Service Center Year 2012 estimation Production Exports [in '000 metric tonnes] YUSCO 715 360 Tung Mung 150 35 Mills Tang Eng 220 30 Chia Far 100 50 Others 125 35 Total 1,310 510 SC's Ta Chen 200 150 YC Inox 240 175 Froch 200 125 Others 300 100 Total 740 400 Grand TOTAL 910
Service Center Advantages PROFESSIONAL SERVICE 30-60 DAY SHIPMENT GOOD PACKAGING VARIETY OF PRODUCT STANDARDIZED QUALITY LEVELS 20 YEAR EXPERIENCE PROCESSED TO SIZE SMALL LOTS AVAILABLE SOME CLAIMABILITY "COMFORT FACTOR" ENABLED NON SERVICE CENTERS TO BECOME SERVICE CENTERS COMMUNICATION VS CHINA MAINLAND
Service Center Disadvantages 90 DAY DELIVERY TIME CHANGE 12 HOURS TO NORTH AMERICA REGIONALIZATION- PRICE PARITY CREDIT TERMS PRICE HIGHER THAN CHINA ($50-$100) FIXED PRICE, NO ALLOY SURCHARGE MECHANISM FIRST TO INCREASE PRICES, LAST TO DECREASE PRICES HIGH 430 BA PRICES VARIETY OF PRODUCTS GRADES / WIDTHS (E.G. >60 WIDE, >3MM NOT EASY TO GET)
China Mainland vs Taiwan
Market Differences DOMESTIC MILL COST STRUCTURE: PRICE DISADVANTAGE 200-300 USD HIGHER THEN CHINA PRIVATE VS PUBLIC OWNERSHIP COST EFFICIENCY RETURNS BORROWINGS EMPLOYMENT NEEDS VOLUME OF MATERIAL PRODUCED PRICE COMPETITION LACK OF PRODUCTION IN CERTAIN GRADES- WIDTHS MILL SERVICE CENTERS INTEGRATION, MILL & SERVICE, CHINESE GROWTH
Cold Rolled Coils (CRC) 304 2B Cost Type - 21 -
Cold Rolled Coils (CRC) 304 2B Production Stage Source:SMR - 22 -
INFLATION CURRENCY EFFECTS USD vs CNY vs TWD Exchange rate 2009 Exchange rate 2013 China USA Taiwan 6.83 1 32.94 6.2 1 29.58 Difference -9.22% 0.00% -10.20% Inflation CPI 2009 1.70% 2.72% -0.90% 2010 4.57% 1.50% 1% 2011 4.06% 2.96% 1.40% 2012 2.41% 1.74% 2.30% Total 12.74% 8.92% 3.80% Total % change -21.96% -8.92% -14.00% Notes: CNY and TWD getting stronger over past 4 years against the USD, making it more difficult to export Low Taiwanese inflation helping to keep them competitive
China mainland Exports CHINESE WILL CONTINUE TO INCREASE EXPORTS Chinese STS Flat Exports Destinations 2009 2010 2011 2012 Y-on-Y Change [ kt ] '11 vs '10 '12 vs '11 USA 27.8 94.1 96.6 99.4 3% 3% Other NAFTA 1.2 4.7 3.1 3.9-33% 25% EUROPE 35.1 113.5 174.0 174.9 53% 0% ASIA 324.0 667.0 1,136.3 1,027.8 70% -10% Others* 77.3 246.4 340.2 299.0 38% -12% TOTAL 465.4 1,125.6 1,750.3 1,604.9 55% -8% *incl. India Chinese STS Long Exports Destinations 2009 2010 2011 2012 Y-on-Y Change in kt '11 vs '10 '12 vs '11 USA 10.2 15.5 24.2 26.0 56% 7% Other NAFTA 2.0 2.6 6.3 6.7 144% 5% EUROPE 16.1 27.7 29.9 15.4 8% -49% ASIA 45.1 97.1 148.6 138.0 53% -7% Others* 43.3 71.5 90.8 88.8 27% -2% TOTAL 116.7 214.5 299.8 274.7 40% -8% *incl. India Source: SMR
China Flat Products Export 05-13 Source:SMR
China Long Products Export 05-13 Source: SMR
Conclusion TAIWAN MILLS AT COST DISADVANTAGE VS CHINESE MILLS SHRINKING MARKET TAIWANESE PRODUCERS MOVE TO CHINA MAINLAND- LISCO,NINGBO QI ENHANCE VALUE ADDITIONS TAIWANESE HAVE HAD A HEAD START AT BEING THE SERVICE CENTER TO THE WORLD. THERE WILL BE A BLENDING OF TAIWANESE SERVICE AT MAINLAND PRICES THROUGH A VARIEY OF FORMS A/ TAIWANESE SERVICE CENTERS MOVING TO CHINA B/ CHINESE MAINLAND SERVICE CENTERS EMPLOYING TAIWANESE MANAGEMENT C/NARROWING OF THE QUALITY AND SERVICE GAP ADD FINANCING OPTIONS TO ENHANCE COMPETITIVENESS TAIWANESE INFLATION HAS HELPED KEEP THEM COMPETITIVE
Conclusion CHINA MAINLAND MILL COST ADVANTAGE IS A THREAT TO THE TAIWANESE MODEL CHINA MAINLAND OVERCAPACITY WILL FORCE CHINESE MILLS TO SUPPORT EXPORTS DIRECTLY OR THROUGH SERVICE CENTERS WHILE MAINLAND SERVICE CENTERS HAVE RAISED THEIR STANDARDS THERE IS STILL A SERVICE GAP COMPARED TO TAIWANESE CHINA MAINLAND TO IMPROVE SERVICE CENTER EXPORT CAPABILITIES -MATERIAL QUALITY -SERVICE LEVELS -CLAIMABILITY -PACKAGING -STANDARDIZATION -SMALL VARIED LOTS -EXAMPLES-DAMING,CHAINCHON,BAOCHANG TAIWANESE SERVICE CENTERS RELOCTATING TO CHINA TO TAKE ADVANTAGE OF LOWER COST MATERIAL
Conclusion REGIONAL COST PARITY MAY LOWER INTERCONTINENTAL TRADE INFLATION AND CURRENCY STRENGTHENING IS ERODING ASIAN COST PRODUCTION ADVANTAGES NEW U.S. MILL EXPANSION (E.G. ALLEGHENY AND OUTOKUMPU) WILL BE LOW COST PROVIDERS WITH ABUNDANT DOMESTIC SCRAP AND MAY AFFECT WORLD STAINLESS TRADE FLOWS
THANK YOU