Understanding the Steel Industry Chain

According to the material, steel can be divided into two categories: "carbon steel" and "stainless steel and alloy steel". The upstream of the carbon steel industry chain includes coal, iron ore, and scrap steel raw materials, as well as large steel billets, small steel billets, flat steel billets, steel ingots, etc. made from the above raw materials through blast furnace or electric furnace; the midstream includes cold and hot rolling. Steel plates, steel coils, steel bars, wire rods, bar steel coils, or rolled and cut and processed into various types of steel and angle steel; downstream applications include a wide range of products, including metal products, mechanical equipment, transportation tools, molds, screws and nuts, Steel wire and cable, industrial facilities, and construction projects, etc. The structure of the stainless-steel industry chain is like that of the carbon steel industry chain, except that the cutting and processing and pipe manufacturing industries in the middle reaches are derived, but the downstream is the same as that of carbon steel.

1. Steel Industry Chain-Upstream:
   

   The upstream raw materials of the steel industry are steel billets and stainless-steel billets, which need to be manufactured through steelmaking procedures. Steelmaking methods can be divided into blast furnace steelmaking and electric furnace steelmaking. The main raw materials for blast furnace steelmaking are iron ore and coking coal (also known as metallurgical media). The representative manufacturer is Sinosteel. The main raw material of electric furnace steelmaking is scrap steel. Because Taiwan’s steelmaking needs insufficient raw materials and energy self-sufficiency, scrap, crude steel, and steel billets mostly rely on imports. Therefore, the development of Taiwan’s domestic mid-and downstream industries is relatively limited. Steel is a steelmaking plant that has always operated.

   Stainless steel is special steel in the steel industry. Stainless steel refers to ferroalloys with a chromium content of more than 12%. Because stainless steel has anti-oxidation and corrosion resistance properties, it is widely used in kitchenware, automotive materials, construction materials, medical materials, and 3C electronics. Stainless steel uses many high-priced metal raw materials such as nickel and chromium, so the material cost of stainless-steel products is about 5 to 10 times that of carbon steel.

   Therefore, once the price of high-priced metals fluctuates, the market will be significantly affected. However, 100% stainless steel products can be Recycling, so it has considerable surplus value.

   Metallurgical coal and iron ore, the upstream raw materials required for blast furnace steelmaking, must rely on imports. In addition, due to the impact of the new crown pneumonia epidemic in 2020, the city will be suspended and the international coking coal demand has weakened. The price decline in the first half of the year has suppressed the operating rate of the blast furnace. The global demand for metallurgical coal is greater than the supply, but the timing comes to the second half of the year, and the scrap price rebounds from the bottom. It is expected that the operating rate of the blast furnace will increase, and the demand for iron ore will be injected. The raw materials for electric furnace steelmaking also need to rely on imports. Therefore, if there is a serious shortage of international scrap raw materials, it will seriously affect the price of scrap steel. Once the upstream raw materials rise, the cost to the middle and lower reaches of Taiwan’s steel industry will inevitably increase. As the epidemic slows down, the mine operating rate will continue to rise and supply on the one hand, near the end of the year, various places have accelerated the progress of capacity reduction, and new coke ovens in some areas have been put into production one after another, and some are still limited in production. Therefore, the coke supply will remain tight. Therefore, the supply and price of coking coal have also remained stable.

   In terms of demand, the coke inventory of steel mills is reasonably low in many places. Some steel mills with low coke inventory have a slight difficulty in replenishing the inventory due to the decline in the volume of automobile transportation and the tight wagons at the end of the year. It is expected that the coke market will continue to grow stronger in the short term, and it may continue to rise in the future.

   At present, the world’s channels are building inventory levels, and steel continues to enter warehouses. This trend has not stopped. The mainland and Europe and the United States are the same. The steel market has not seen any failure so far. The prospects are still promising, but the price is rising. Too fast requires attention to follow-up effects.

   At present, China is the world's largest steel producer and the largest iron ore consumer. Therefore, China's demand will affect the profits of global iron ore factories. In recent years, the Chinese government has implemented supply-side reforms to absorb excess capacity and requirements. Steel mills cut production to improve air quality. Under the influence of stricter environmental protection regulations, factories use high-quality iron ore to increase their capacity utilization. This drives up the price of iron ore, and the increase in coking coal costs and mine profits will increase the utilization rate of production capacity. The main reason for the rise in iron ore prices. In 2020, affected by the new crown pneumonia epidemic, Brazil, the world's second-largest iron ore exporter, has a surge in the number of pneumonia infections. The price changes of iron ore in 2020 will be affected by the concentration of iron ore sellers and the scattered buyers of the industry. The existing market needs to be changed. The pattern and pricing mechanism require the futures and spot industries to meet each other, form a joint force, improve the market balance mechanism, and establish a new trade price formation mechanism. Iron ore has hit a new high price in the past ten years, and the world is rushing for the material. The main reason is that the blast furnace that has been closed due to the new crown pneumonia epidemic will take time to resume production, resulting in tight supply, and will not be good in the short term. At present, China’s iron ore ports are still at a relatively low level for the past five years. In addition to the continuation of China’s infrastructure construction policy, it is expected that China will still have to replenish iron ore stocks to support crude steel production in the long term. Therefore, iron ore prices are estimated in 2021 will remain high-end.

2. Steel Industry Chain-Midstream:
   

   The midstream products of the iron and steel industry belong to the carbon steel category. The products include hot and cold rolled steel coils, steel bars, wire coils, and bar steel coils; in terms of stainless steel, there are cold and hot rolled stainless steel coils, stainless steel rods and wires, and stainless-steel sections. And the cutting and processing and pipe making industry in the subsequent period. Using general steel billet as raw material, it is rolled into coils, which can be processed to produce downstream products such as screws, nuts, steel wires, etc.; the difference between wire coils and bar steel coils in the middle reaches, the diameter of which is greater than 14mm, is called Bar steel, the one below 14mm is called wire.

   In terms of stainless steel, flat steel billets are heated, rolled by roughing mills and finishing mills, and cooled by spraying water to form hot-rolled steel coils. They are mainly used as raw materials for cold-rolled steel coils. They can also be used to make steel pipes, containers, containers, etc. Tube products: Hot-rolled steel coils are pickled, rolled, annealed, and finished into cold-rolled steel coils. The main markets are tube-making, bicycles and parts, automobiles and motorcycles and parts, plating products, etc.

   • Reinforcing steel bars: steel bars, which are a kind of building materials.
   • H-shaped steel: long steel with an "H-shaped" cross-section, which is also building material.
   • Wire coil element: Generally, refers to the strip steel with a diameter of 14mm or less.
   • Bar steel plate element: Generally, refers to the strip steel with a diameter of 14mm or more.
3. Steel Industry Chain-Downstream:
   

   The iron and steel industry is the mother of industry, and its downstream applications include all kinds of metal products, machinery and equipment, transportation tools, molds, screws and nuts, steel wires and cables, and various steel materials required for industrial facilities and construction projects, such as stainless steel. Pipe fittings, micro-joint components, construction hardware parts, lock products, etc.; there is an invisible champion in the lower reaches of Taiwan’s steel industry, which is the fastener industry. In recent years, it has been affected by the US-China trade war. Taiwan’s overall export growth has slowed down, but the fastener industry has not Therefore, the benefits of transfer orders are mainly because China's screws and nuts are mainly low- and medium-end products, which are low in price and do not have technical content. However, Taiwan screws and nuts are mainly high-end special products with good quality and more technical content. China After being levied a 25% tariff by the United States, it was replaced by Southeast Asia, India, and other places with similar quality and price. Taiwan’s fasteners use high value-added products such as automotive fasteners, aerospace components, etc. The product standards are high and they need to obtain standard certification and verification. In addition, it is difficult to operate the channels of major international manufacturers. Although some manufacturers have adopted international Mergers and acquisitions is easy to cut into international channels.

   Taiwan's fastener industry is mainly export-oriented, and the export ratio in 15 years has reached more than 92.5%. In 2019, Taiwan’s export value was NT$138.9 billion, and the export volume was 1.568 million metric tons. At present, there are 1,611 screw fastener factories in Taiwan, mainly small and medium-sized enterprises. 75% of screw factories are small enterprises and most of them are in Kaohsiung. In 2020, due to the impact of the COVID-19 situation around the world, the shutdown and lockdown of cities and countries in various countries caused international oil prices to fall and the risk of global economic uncertainty increased, and financial markets were affected. Although the decline in oil prices has a positive impact on corporate production costs, the economic recession derived from the COVID-19 epidemic and when it will stop are still full of unknown variables, which are even more worrying. Taiwan’s fastener industry has also been severely impacted by the COVID-19 epidemic. The output value has declined by 13%, and the business has been miserable. Especially during the epidemic period, fasteners cannot be exported temporarily, but the raw materials have been ordered, and manufacturers must bear the relevant cost, the current recession has not yet bottomed out. Due to the low overall inventory level of major export customers, some manufacturers felt that customer inventory replenishment and urgent order demand increased, so there was stabilization in the second half of the year, but there are still signs of recession throughout the year. According to the forecast of the World Steel Association, the global steel industry will be Shrinking by 2.4% to 1,725.1 million tons, it has a chance to rebound by 4.1% in 2021. At present, countries all over the world are seeking to effectively control the epidemic and continue to grow their economies. Therefore, it is estimated that once the epidemic intensifies, it is not easy to implement comprehensive lockdown measures. But the resilience of the economy is still quite fragile.

   Despite the rise of China's red supply chain, Chinese manufacturers have entered the international market with many low prices, resulting in more intense competition; Taiwan is known as the kingdom of screws, and fasteners are also known as the mother of industry, and Taiwan is among the top five fasteners in the world. The supplier country is also a world-renowned supplier of screws. The industrial chain of screws is formed, heat-treated, electroplated, packaged, and shipped, and exported in one go. It is also an important settlement for Taiwan’s economic expansion to the world. The export ratio is more than 90%. Fasteners in the world Take a firm place in the industry map. At this stage, Taiwanese factories are more actively developing distinctive and niche screw and nut products, using smart production equipment to accelerate the introduction of smart machinery in the industry, using smart manufacturing to deepen applications and implementing digital transformation through management; promoting the integration of upstream, midstream, and downstream processes. Improvements, etc.; Taiwan’s screw and nut industry can only differentiate itself from the rapidly catching up China market and maintain its competitiveness in the international market.

   The screw and nut industry also uses ICT technology to innovate service models and move towards the servitization of the manufacturing industry. They also actively use government resources to continue to expand high-value-added products, such as the development of the automobile, aerospace, and medical industries and are committed to equipment intelligence. With the development of green manufacturing processes, enhancing the added value of products, and maintaining sustainable operations to separate China’s low-price market, can we continue to gain comparative advantage and international competitiveness in unequal competition, and we hope to continue to consolidate Taiwan’s global fastener industry the dominant position.

   Taiwan’s steel products cannot win by volume, and there are tariff barriers. The global ranking of steel production can be used to understand the distribution trend of the global steel industry. The domestic China Steel ranks 11th in the world, and it is in the middle of the world’s top 50 steel mills. The leading position is because the steel production scale is still small globally. Although its six blast furnaces are fully operational, it also means that the future steel output cannot be increased. Therefore, in the future, Sinosteel will only replace scale with exquisite quality. Production, and continuously improve the added value, can continue to create competitiveness in the global market and contribute to Taiwan’s economic struggle.

   At present, the US market is still one of the main markets for Taiwan’s steel industry. In addition, other alternative markets must be actively developed. After all, Taiwan’s domestic demand market is small and the demand for infrastructure construction is not large. The contracting of public construction is the main source of domestic sales for manufacturers. In the era of international political and economic turmoil and economic uncertainty, the 15 Asia-Pacific countries formally signed the RCEP agreement in November 2020, which is dominated by China and covers nearly one-third of the world’s population and gross domestic production. The world’s largest free trade agreement, and Japan and South Korea will be the biggest beneficiaries of RCEP. As for Taiwan, which is excluded, since RCEP will promote further integration of the Asia-Pacific supply chain, Taiwanese factories must strengthen their layout and cooperation to respond. Therefore, in the future, Taiwan's steel industry must actively seek relevant exports to other countries such as the ASEAN and Europe, so that it can actively develop and grow in a difficult environment to occupy a place in the international market.