China Looking to Buy U.S. Steel Plant

Jason Sandefur

Editor”s Note: The following column is presented by Taiwan-based Fastener World magazine as part of a news column exchange with FIN.
To meet the mushrooming domestic demand for steel, Bao Shan Steel, China”s largest steel company, may buy an American steel plant and increase its output by 50%. Bao Shan already has plans to build plants in Luxemburg and Brazil, and is in discussion with Companhia Valedo Rio Doce SA (the largest steel exporting company in the world) and Arcelor SA (the largest steel manufacturing company in the world). Other companies in China are looking to import more raw materials, such as iron ore, coke and nickel. Four steel manufacturing groups in China have signed an agreement with iron ore supplier BHP Billiton of Australia to procure 12 million tons of iron ore per year for the next 25 years starting in 2005. South America could become another source of raw material imports for China.
Taiwan Fastener Exports on Record Pace
Taiwan fastener firms are flourishing as the global economy improves and demand in the U.S. and Europe grows. The Taiwan Fastener Association predicts that exports of screws and nuts will increase 14% to 29 million tons in 2004, boosting the fastener export value 22% to $2.2 billion. Such figures would establish Taiwan as the top-ranking exporting country. While Taiwan produces fewer fasteners than Japan or China, nearly 90% of its screws and nuts are exported, a trend that has increased in recent years.
Export Wholesale Prices and Profits Jump
Driven by rising steel costs, the export wholesale price of fasteners will increase by 30% to 46% in the coming months, prompting large Taiwan fastener companies to predict record turnovers and profit margins.
Taiwan Fastener Association chair John Wu encouraged companies to seize the opportunity to raise prices. For the second quarter of 2004, China Steel Corp. increased wholesale price of steel rod by NT$ 2,700 (US$80) per ton. Wu said corresponding downstream companies should increase their product prices by at least 30% to cover the price hike. If that advice is followed, the export wholesale price of large fastener products would jump from $850 per ton to more than $1,100.
Global Steel Price Will Continue to Rise
In April of 2004, though the increase of steel price in Taiwan stops, Shanghai steelmakers increased the price of cold-pressed steel by 16% in April, compounding a market already burdened with wholesale price increases from China Steel Corp during the second quarter. Experts predict steel prices will continue to climb, propelled by a projected leap in demand during the fourth quarter of 2004. Demand will likely be spurred by China, which took temporary measures during Q2 to discourage domestic steel hoarding and price hikes. Such measures limited steel consumption and lowered domestic prices. But China has exhausted its steel reserves, signaling increased demand in the coming months that will likely boost global steel prices.
Steel Prices Have Varying Effect on Fastener Producers
The ongoing hike in steel prices has produced bigger profits for many large Taiwan fastener firms, while smaller companies are being squeezed by increased costs they are unable to pass along to customers. While raw material costs have risen and fastener prices have been increased several times, many importers of Taiwan fasteners are unwilling to accept any price adjustments. Some fastener firms say only the fastener companies with large OEM orders can increase their product prices without difficulty. Other producers have to persuade their clients to accept their price increases, risking a financial backlash if clients refuse to pay more.
The Taiwan Fastener Association pointed out that at least one Taiwan company was able to increase prices because of backing by large orders from auto giants such as Mazda and Toyota. However, many fastener companies manufacture products are of ordinary grade and quality, forcing them to compete with fastener makers in China and Southeastern Asian countries. Such market forces make them unwilling to take new orders. In addition, some companies are shipping out standing orders at lower prices, cutting margins deeply and risking financial ruin and labor strikes.
Dealers May Be Accountable for Inflated Steel Prices
Steel dealers are being investigated for inflated steel prices in Taiwan. A task force from the Fair Trade Committee and the Ministry of Economic Affairs has launched an inquiry into dealer practices that artificially inflate state prices. In the past, many downstream companies did not report dealers” missteps for fear that their steel supply might be cut off.
China Steel Issues Measures to Combat Steel Shortages
China Steel Corp. is taking steps to reduce the problem of insufficient steel supply and assist the downstream companies to acquire steel. These steps include: setting up a system, so steel consumers can express concerns and request an on-site survey; mediating business between downstream companies and China Steel clients; reducing supply to companies who export steel without any processing; and threatening to terminate its relationship with any client found hoarding steel.
Taiwan to Build Fastener Museum
The first fastener museum in Taiwan will be erected in Gon-shan. Over 70% of fasteners produced in Taiwan are made in Gon-shan, making fasteners the biggest industry in the city. The local government of Gon-shan started planning the museum with the Taiwan Fastener Association and Gon-shan Agricultural and Industrial Association in May of 2003. The name of the museum has been set as “Gon-shan Taiwan Fastener Museum” and will serve to preserve, educate and attract attention to Taiwan fasteners. The local government hopes to preserve the historical development of the fastener trade in Gon-shan so the city will be known for its fastener trade and other traditional trades such as honey, bean sauce and mutton.
TFA chair John Wu said the museum would be quite meaningful and the association would fully support it. The museum will include the introduction of influential figures in the historical development of the fastener trade in Gon-shan; the history of fastener development; aging machines used to manufacturing fasteners; and hands-on activities. \ �2004 FastenerNews.com