Higher Energy Prices will Result in a Lower Output of Stainless-Steel Products in Taiwan

Taiwan's Ministry of Economic Affairs (MOEA) announced on March 17 that certain homes and businesses' electricity tariffs will hike by 3-17% beginning April 1.

According to the ministry, industrial firms that use high voltage and ultra-high voltage, such as steel mills, will have to pay 17% more for electricity, while smaller businesses that use low-voltage electricity will see rates hike by 10%.

Industrial consumers whose electricity use is reduced by 10% or more in the second half of 2022 will see their price increases cut in half.

Taiwan Power (Taipower), the state-owned electricity business, has been financially strained as a result of increasing worldwide fuel prices. According to the MOEA, this round of electricity price increases will reflect current fuel costs.

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Taiwan imports over 98% of its energy. According to World Nuclear Association projections, the phase-out of nuclear power might result in an increase of more than 10% in electricity prices.

The requirement for air conditioning equipment increases the demand for power in Taiwan during the summer season, which typically begins in June. As a result, the government charges mill substantially higher electricity costs throughout the day.

Mills are also subsidised by the government if they only produce during off-peak hours. According to market sources, most mills will restrict or stop production throughout the day in the summer.

Summer Steel Production Can Still be Reduced

Due to the continued rise in electricity costs, market sources believe Taiwanese mills will need to restrict steel production more than usual this summer, especially since downstream demand for steel products is expected to remain poor in the short term.

Summertime output may decrease even further this year, but the precise impact of this round of electricity price increases remains unknown. It is the first time in recent years that the government has opted to boost electricity tariffs before the rationing season.

However, market sources predict that even if the increase in electricity costs causes more production cuts than in recent years, the impact on finished steel pricing will be minimal.

A 17% increase in electricity costs is significant. However, due to weak steel demand in Taiwan, mills may be unable to raise their finished steel prices to reflect this portion of the cost increase," a Taiwanese trading source told Fastmarkets on Wednesday, March 29, "Major mills have all been continuously lowering their rebar sales price in the past two weeks." They are more inclined to advocate for lower scrap buying prices in order to save money."

People are not enthusiastic about rebar downstream demand in the short future. Some mills have already lowered their manufacturing capacity in preparation for the summer season. Taiwan's finished steel sales are still too slow.

Increased Downward Pressure on Steel Scrap Pricing

Indeed, scrap prices in Taiwan have continued to fall as a result of the local market's gloomy sentiment.

For the week beginning Monday, March 27, a major electric-arc furnace (EAF)-based steelmaker reduced both its rebar sales price and domestic scrap procurement price by NT USD 300 (USD 9.88) per tonne.

According to Fastmarkets, the EAF mill has reduced its rebar pricing by NT USD 500 per tonne and its scrap price by NT USD 800 per tonne since Monday.

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Fastmarkets' latest daily price assessment for containerized steel scrap HMS 1&2 US material import, cfr major port Taiwan, was USD 395-400 per tonne on Thursday, March 30, the steady day on the day but down USD 20 per tonne week on week.

As per Procurement Resource, Taiwan's Ministry of Economic Affairs announced on March 17 that various electricity tariffs for families and businesses will increase by 3-17% commencing April 1. According to the ministry, industrial organisations that use high and ultra-high-voltage electricity, such as steel mills, will have to pay 17% more for electricity, while small businesses that use low-voltage electricity will see prices rise by 10%. Industrial customers who lower their electricity consumption by 10% or more in the second half of 2022 will see their price rises cut in half.