Steeling Itself For Higher Prices

Economic News

22 Jul 2010
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Taiwan has responded to soaring international metals prices by announcing it will temporarily suspend exports of some processed steel products, with the possibility of extending the ban to include other items in the future.



On February 20, the Ministry of Economic Affairs announced it would prohibit the export of locally produced steel reinforcement bars and billet for at least three months, as of March 5.



Announcing the ban, Economic Affairs Minister Steve Ruey-Long Chen said the decision to suspend exports of the two products was an effort to counter the recent shortage of supply in the domestic market. The export restrictions could be extended to cover scrap steel and H-beam steel if similar shortages arose, he said, though imports would not be affected.



"No restrictions will be placed on steel imports as Taiwan is an open market and steel prices should be in line with international prices," Chen said.



Taiwan's export ban comes as both steel and iron ore are hitting record prices driven by increasing global demand. In the days preceding Taipei's decision, steelmakers in Asia and Europe reached an agreement with Brazilian iron ore producer Vale to accept the miner's demand for a 65% price increase.



Vale said the new tariffs reflected the ongoing excessive demand in the global iron ore market. The new price agreed by Japanese and South Korean steelmakers of $1.2517 per dry metric tonne unit is expected to serve as the international benchmark, flowing on to countries such as Taiwan.



The ban will hit at the country's foreign trade figures. In 2006, the last year for which full figures are available, Taiwan was ranked as the world's eighth largest steel exporter by the World Trade Organisation, with overseas sales bringing in $10bn. Taiwan is dependent on imports to fuel both its domestic market and meet its growing export commitments.



According to figures released by the Bureau of Foreign Trade on February 19, the cost of imports of steel products in January came to $1.18bn and was a factor in the reduction in the trade surplus, which fell by 16.5% compared to the same month in 2007 to $1.53bn.



It is the first time that Taiwan has ever had to resort to blocking exports of steel and the ban is expected to the contribute to the tightening of the international steel market.



When announcing the ban, Chen said his ministry would request the state-owned China Steel Corporation commit to keeping its prices lower than the international levels and make supplying the domestic market a priority.



Currently, China Steel prices its products at between $130 and $150 a tonne below the international market rate, leaving little or no room for further reductions, he said.



However, Wu Sheng-feng, chief executive of the Taiwan Steel and Iron Industries Association, said he doubted whether the ban would be effective, given that the main problem was not a domestic shortage but rising international prices, which were making it impossible for local contractors to buy cheap steel.



"Soaring steel prices are an international phenomenon, which is something Taiwan can't buck," Wu said in an interview with local press on February 21.



Rather than ask contractors to absorb the costs themselves, the government should reimburse construction contractors for the difference in steel price, he said.



Officials have been concerned at the rising prices of building materials, especially steel. While some of the heat in the market has been caused by increased demand from China, with the rush to complete facilities in time for this year's Olympics cited as a prime driving force, higher start levels in construction worldwide means the call on steel resources will continue even after the games begin.



Chen said that if prices remained high for another three months, he would ask the Industrial Development Bureau to launch an inquiry to determine if there was any fixing of tariffs in the local market. However, with global demand growing and prices already set in advance, Taiwan may have to look further afield for the causes of local shortages.

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