IEK': Taiwan's Machinery Industry SRto SGGo Back to Steady-growth Period in 2012

'''Taiwan's overall machinery industry will go back to a normal development situation with production value growing 6% up to 9% year-on-year in 2012. Even a double-digit growth like years before is out of the picture, the industry will see annual production value break the NT$1 trillion mark in 2012. This projection results from a study carried out by Yeh Lih-lun, an industry analyst with the Industrial Economics and Knowledge Center (IEK), a unit of the government-backed Industrial Technology Research Institute (ITRI). The study was commissioned by the Economics Ministry's Department of Industrial Technology under the Industrial Technology Intelligence Services (ITIS) program.

Despite the impact of the European sovereign debt crisis, Taiwan's machinery industry is expected to see production value reach NT$242.3 billion in the third quarte of 2011, up 12.06% year-on-year.

Production Value:

In terms of specific sector, production value for domestically made machine tools is anticipated to reach NT$42.8 billion in the third quarter of 2011, up 18.7% from a year earlier. Nevertheless, the credit-tightening policy implemented in China will made domestic machine-tool sector encounter a slow growth in the second half of 2011. The IEK believes domestic machine-tool sector will see annual production value grow 26.95% year-on-year to reach NT$167.3 billion, or even exceeding the historic high of NT$170 billion, in 2011.

The production value for the high-tech production equipment amounted to NT$28.1 billion in the third quarter of 2011, down 7.88% from the preceding quarter but up 4.28% from a year earlier. It is expected the sector will see annual production value reach NT$106.2 billion in 2011, up 6.75% year-on-year.

Industrial machinery is one of the largest sectors in Taiwan's machinery industry in terms of production value. The sector includes woodworking machinery, plastic processing machinery, textile machinery, food processing machinery, printing machinery, chemical machinery, packaging machinery, etc. Squeezed by China's rival competitors, Taiwan's manufacturers of industrial machinery have seen a limited growth in production value over the past several years. An industry insider says China's industrial machinery manufacturers are very aggressive to explore Asian and Latin American markets which has affected the export performance of domestic manufacturers in this line. Statistics compiled by the IEK show Taiwan's industrial machinery sector saw production value reach NT$41.5 billion in the third quarter of 2011, up a mere 1.91% from a year earlier. Whole-year production value is expected to reach NT$164.3 billion in 2011, up 5.13% year-on-year.

Other major 'machinery sectors include pumps, compressors and fans; conveyors and automation equipment; and mechanical transmission devices. The IEK predicts annual production value for the above-mentioned three sectors will come to NT$75.2 billion, NT$43.9 billion and NT$19.3 billion in 2011, up 15.97%, up 15.92% and down 38% year-on-year respectively. (See table below)

Production Value of Taiwan's Machinery Industry Unit: NT$1 million
Sector	Q3, 2010	Q3, 2011	Y/Y Change (%)	2010	2011 (forecast)	Annual Change (%)
Metalworking Machinery	36,017	42,752	18.7	131,807	167,331	26.95
High-tech Production Equipment	26,979	28,134	4.28	99,470	106,180	6.75
Industrial Machinery	40,761	41,541	1.91	156,309	164,328	5.13
Conveyors, Automation Equipment	10,438	10,902	4.45	37,831	43,854	15.92
Mechanical Transmission Devices	8,076	4,930	-38.95	31,131	19,315	-37.96
Pumps, Compressors, Fans	17,518	18,791	7.27	64,875	75,238	15.97
Construction Engineering Machinery	217	160	-26.27	885	698	-21.13
Agricultural Machinery	1,259	1,331	5.72	5,356	5,306	-0.93
Engines	4,725	5,149	8.97	18,155	20,597	13.45
Others	70,240	88,625	26.17	267,848	347,568	29.76
Total	216,230	242,315	12.06	813,667	950,415	16.81
Source: Industrial Economics and Knowledge Center, Industrial Technology Research Institute

Imports:

Taiwan imported NT$100.53 billion wroth of machinery in the third quarter of 2011, down 36.32% from the preceding quarter and down 61.12% year-on-year. The IEK forecasts overall imports of machinery will amount to NT$567.7 billion in 2011, down 35.44% year-on-year.

In terms of specific items, imports for high-tech production equipment amounted to NT$26.7 billion in the third quarter of 2011, down 53.02% from the preceding quarter. The IEK predicts imports of high-tech production equipment will slump 59.08% year-on-year to reach NT$206.6 billion in 2011. The IEK attributed the decline in imports of high-tech production equipment to the fact that domestic high-tech industries, such as semiconductor and electronics, have already completed production expansion in 2010 after experiencing an impact of the 2008 global financial crisis.

Industrial machinery is the second-largest import sector 'with import value reaching NT$21.6 billion in the third quarter of 2011, down 30.71% from a year earlier. Whole-year imports for this sector will reach NT$101.9 billion in 2011, down 3.81% year-on-year.

The third-largest import sector goes to pumps, compressors and fans 'with 'import value reaching NT$15 billion in the third quarter of 2011, down 26.1% from a year earlier. The IEK believes the sector will see import value come to NT$81.1 billion in 2011, up 4.5% year-on-year.

The sector of metalworking machine tools, including electric discharge machines, metal-cutting and forming machines, and components and parts, saw import value reach NT$5.6 billion in the third quarter of 2011, down 37.08% from the preceding quarter and down 42.91% year-on-year.

Import value for mechanical transmission devices came to NT$6.1 billion in the third quarter of 2011, down 27.73% from the preceding quarter and down 15.45% from a year earlier. (See table below)

Import Value of Taiwan's Machinery Industry Unit: NT$1 million
Sector	Q3, 2010	Q3, 2011	Y/Y Change (%)	2010	2011	Annual Change (%)
Metalworking Machinery	9,728	5,554	-42.91	30,199	30,078	-0.4
High-tech Production Equipment	155,073	26,746	-82.75	504,867	206,579	-59.08
Industrial Machinery	31,123	21,565	-30.71	105,947	101,914	-3.81
Conveyors, Automation Equipment	5,495	3,089	-43.79	22,719	16,168	-28.83
Mechanical Transmission Devices	7,267	6,144	-15.45	27,064	28,563	5.54
Pumps, Compressors, Fans	20,281	14,987	-26.1	77,656	81,149	4.5
Construction Engineering Machinery	3,910	2,267	-42.02	13,488	12,270	-9.03
Agricultural Machinery	334	264	-20.96	1,524	1,768	16.01
Engines	13,978	11,346	-18.83	50,104	47,156	-5.88
Others	11,420	8,572	-24.94	45,736	42,040	-8.08
Total	258,608	100,534	-61.12	879,304	567,686	-35.44
Source: Industrial Economics and Knowledge Center, Industrial Technology Research Institute

Exports:

Taiwan exported NT$99.4 billion worth of machinery in the third quarter of 2011, down 27.23% from a year earlier. 'It is anticipated the nation will see machinery exports total NT$499.1 billion in 2011, down a mere 0.09% year-on-year.

'In terms of specific export sector of domestically made machines, the sector of machine tools grew the most with export value hitting NT$25.8 billion in the third quarter of 2011, down 21.56% from a year earlier. Whole-year export value for this sector is expected to reach NT$126.8 billion, up 8.93% year-on-year. Export value for machine-tool components will surpass NT$30 billion to reach NT$32.7 billion in 2011, up a whopping 36.25% from NT$24 billion a year earlier. The IEK predicts exports of domestically machine-tool components will equal to that of machine tools within the next two years.

The industrial machinery sector saw export value total NT$24.5 billion in the third quarter of 2011, down 34.45% from the preceding quarter. The sector' is expected to see annual exports reach NT$126.7 billion in 2011. Southeast Asia will replace China as the largest export outlet of Taiwan-made industrial machinery in the few years to come.

Exports of domestically made pumps, compressors and fans totaled NT$13.9 billion in the third quarter of 2011. The IEK predicts exports for mechanical transmission devices, mainly ball screws, gears and bearings, will reach NT$43.5 billion in 2011, up 51.61% year-on-year. (See table below)

Export Value of Taiwan's Machinery Industry Unit: NT$1 million
Sector	Q3, 2010	Q3, 2011	Y/Y Change (%)	2010	2011 (forecast)	Annual Change (%)
Metalworking Machinery	32,858	25,773	-21.56	116,402	126,792	8.93
High-tech Production Equipment	11,845	6,833	-42.31	41,574	33,360	-19.76
Industrial Machinery	37,361	24,491	-34.45	135,328	126,724	-6.36
Conveyors, Automation Equipment	3,388	2,936	-13.34	13,779	16,991	23.31
Mechanical Transmission Devices	7,645	10,217	33.64	28,719	43,542	51.61
Pumps, Compressors, Fans	18,960	13,934	-26.51	69,485	69,352	-0.19
Construction Engineering Machinery	2,180	1,482	-32.02	7,534	7,700	2.2
Agricultural Machinery	1,066	689	-35.37	4,488	4,076	-9.18
Engines	2,850	3,168	11.16	11,389	13,351	17.23
Others	18,480	9,902	-46.42	70,880	57,242	-19.24
Total	136,633	99,425	-27.23	499,578	499,131	-0.09
Source: Industrial Economics and Knowledge Center, Industrial Technology Research Institute

Major Developments in Q3, 2011:

--FTA between South Korea and the U.S.

The free trade agreement (FTA) between South Korea and the U.S. effective from the beginning of 2012 will affect NT$350 billion worth of exports of Taiwan-made machinery yearly, according to statistics compiled by the Ministry of Economic Affairs. Domestic industries mostly affected by the FTA between South Korea and the U.S. will include plastic products, textile products, petrochemical products, machinery, metal products and large-sized TFT-LCD (thin film transistor-liquid crystal display) panels.

P.C. Huang, honorary chairman of the Taiwan Association of Machinery Industry, says domestic related manufacturers profwill see a loss of 3% up to 5% profit margin because of the impact of the FTA between South Korea and the U.S. Accordingly, some low-margin products made in Taiwan will be kicked out of the international marketplace because of losing competitiveness.

--Manufacturers of machine-tool components rush to invest in Taiwan

Because of the implementation of the cross-Taiwan Strait economic cooperation framework agreement (ECFA), some domestic and foreign manufacturers of machine-tool components have resolved to expand investments in Taiwan.

ECFA provides a platform for foreign enterprises to enter the Chinese market through Taiwan, and China offers a huge market for Taiwan's products and services. The zero-tariff provided by ECFA is a strong incentive for foreign manufacturers to invest in Taiwan as a springboard to China.

China became the world's largest importer of machine tools in 2003; it has an abundant supply of low-end machine tools from domestic manufacturers, but has to rely on foreign suppliers for medium- to high-end models, mainly from Germany, Japan, Taiwan, and Switzerland.

The IEK believes that China's demand for high-priced imported machine tools will continue rising because of the country's need for state-of-the-art production equipment to upgrade its industries. 'Its domestic output currently cannot meet the demand.

As the ECFA regulates all the CNC controllers embedded in the machine tools shipped to China have to be 100% completed in Taiwan and China to enjoy zero customs tariffs. At present, Taiwan and China need 60,000 and tens of thousands sets of CNC controllers yearly.

To grab the massive business opportunities created by the ECFA, Pou Chen Group and Hon Hai Precision Industry Co. have unanimously resolved to increase investments in the research and development of CNC controllers domestically. Hiwin Technologies Corp., Taiwan's leading manufacturer of key machinery components, will invest over NT$10 billion in Taiwan within the next three years. Fair Friend Group will launch a massive investment project totaling NT$1 billion to build a new plant in Taichung Precision Machinery Park.

In April, 2011, the Japan-based Fanuc Corp. has resolved to invest NT$2 billion to roll out medium- and low-tier CNC controllers in Taiwan. Another Japanese firm—OKUMA has decided to invest NT$700 million to produce lathes in Taiwan. Kuraki Corp. will invest NT$200 million to roll out metal-cutting machining centers in Taiwan.

Forest-Line, a French manufacturer of machine tools, has expressed a strong interest in cooperating with Taiwanese companies to develop the pan-Asia market, and representatives of South Korea's Doosan Group have come to seek M&A opportunities.