IEKC Looks at Nuts and Bolts of Taiwan's Machinery Industry
2011/09/23 | By Ben ShenTaiwan's machinery industry output reached NT$243.4 billion in the second quarter of 2011, representing an 18.9% year-on-year growth or up 15.6% from the preceding quarter, according to a survey by the Industrial Economics and Knowledge Center (IEKC) under the government-funded Industrial Technology Research Institute (ITRI).
Predicting Taiwan's machinery industry output to reach NT$958.6 billion in 2011, up 17.8% from the preceding year, the IEKC, however, notes the local industry has slowed in production value since the latter part of the second quarter due to the March 11 catastrophic earthquake and tsunami in northeastern Japan and declining orders from abroad; but Mitsubishi Electric, Japan's leading supplier of key mechanical components, has resumed normal supply of products to Taiwan since June.
The IEKC also believes booming demand from China and other Asian emerging markets will keep Taiwan's leading machinery makers busy in the third quarter.
The industry's production value will grow 12.8% year-on-year to reach NT$243.9 billion in the third quarter, with production value to grow 6% to 9% year-on-year to exceed NT$1 trillion in 2012, says the IEKC.
Specifics
The machine-tool sector's production value reached NT$41.9 billion in the second quarter, up 25% from a year earlier, but will slow in the second half due to credit-tightening launched by China's government to curb inflation. The IEKC predicts the machine-tool sector's production value to grow 25.6% year-on-year to NT$165.5 billion or even exceed NT$170 billion for a historic high in 2011.
The IEKC forecasts the production equipment for high-tech sector's production value to grow 21.1% year-on-year to NT$120.5 billion in 2011.
Industrial machinery for woodworking, plastics and rubber processing, textile, food-processing, printing, chemical and packaging sectors make up the largest portion of Taiwan's machinery industry in production value, with the high growth of the sectors being threatened by that in China, which has been aggressively tapping especially Asian and Latin American markets over the past several years.
Taiwan's industrial-machinery sector turned out NT$41.1 billion of products in the second quarter, up a mere 2.3% year-on-year, with the IEKC predicting the sector's annual production value to reach NT$163.1 billion in 2011, up 4.3% from the preceding year.
The pumps, compressors and valves sector's production value totaled NT$19.2 billion in the second quarter, up 11% year-on-year, and is expected to reach NT$75.1 billion in 2011, up 15.8% from the preceding year.
The conveyors and automation equipment sector's production value came to NT$10.4 billion in the second quarter, up 14.1% year-on-year, and is expected to reach NT$42 billion in 2011, up 10.9% from the preceding year; while the sector of mechanical transmission devices, including ball screws and bearings, will see 2011 production value reach NT$19.3 billion, down 37.9% from the preceding year. (See table I)
Table I
| Production Value of Taiwan's MachineryIndustry in Q2, 2011 Unit: NT$1 Million | |||||||
| Sector | Q1,2011 | Q2, 2011 | Q/Q | Y/Y | 2010 | 2011 (forecast) | Annual Change |
| Metalworking Machinery | 34,774 | 41,874 | 20.4% | 25% | 131,807 | 165,588 | 25.6% |
| High-tech Production Equipment | 24,981 | 30,790 | 23.3% | 28.9% | 99,470 | 120,486 | 21.1% |
| Industrial Machinery | 36,941 | 41,128 | 11.3% | 2.3% | 156,309 | 163,085 | 4.3% |
| Conveyors, Automation Machinery | 9,146 | 10,437 | 14.1% | 30.5% | 37,831 | 41,954 | 10.9% |
| Mechanical Transmission Devices | 4,554 | 5,009 | 10% | -40.1% | 31,131 | 19,341 | -37.9% |
| Pumps, Compressors, Valves | 17,261 | 19,162 | 11% | 13.9% | 64,875 | 75,117 | 15.8% |
| Construction Engineering Machinery | 164 | 183 | 11.6% | -30.9% | 885 | 705 | -20.4% |
| Agricultural Machinery | 1,170 | 1,408 | 20.3% | -1.8% | 5,356 | 5,170 | -3.5% |
| Engines | 3,840 | 4,439 | 15.6% | -19.6% | 18,155 | 18,244 | 0.5% |
| Others | 77,772 | 88,959 | 14.4% | 33.4% | 267,848 | 348,892 | 30.3% |
| Total | 210,603 | 243,389 | 15.6% | 18.9% | 813,667 | 958,580 | 17.8% |
| Source: Industrial Economics andKnowledge Center, Industrial Technology Research Institute | |||||||
Imports
Taiwan imported NT$160.37 billion of machinery in the second quarter of 2011, down 4.2% from the previous quarter and down 29.8% year-on-year; while the IEKC predicts Taiwan will import machinery totaling NT$658.2 billion in 2011, down 25.1% from the preceding year, of which production equipment for high-tech industry will make up 60% of total imports.
The second-largest import will be industrial machinery, mainly machinery for distilling, printing and hot-forming glassmaking. Taiwan imported NT$29.6 billion worth of industrial machinery in the second quarter, up 39.4% year-on-year.
Some NT$23 billion of pumps, compressors and valves were imported in the second quarter, up 17.1% year-on-year, with the figure to reach NT$89.3 billion in 2011, up 14.9% from the preceding year.
Imports of machine tools and accessories totaled NT$9.2 billion in the second quarter, and will grow 13.9% year-on-year to reach NT$34.4 billion in 2011. Imports for mechanical transmission devices amounted to NT$7.7 billion in the second quarter, up 10.4% year-on-year and up 12.9% from the preceding quarter. (See table II)
Table II
| Import Value for Taiwan'sMachinery Industry in Q2, 2011 Unit: NT$1 Million | |||||||
| Sector | Q1,2011 | Q2, 2011 | Q/Q | Y/Y | 2010 | 2011 (forecast) | Annual Change |
| Metalworking Machinery | 8,177 | 9,234 | 12.9 | 33.5 | 30,199 | 34,400 | 13.9 |
| High-tech Production Equipment | 71,259 | 59,924 | -15.9 | -57.7 | 504,867 | 266,901 | -47.1 |
| Industrial Machinery | 25,479 | 29,566 | 16 | 39.4 | 105,947 | 108,456 | 2.4 |
| Conveyors, Automation Machinery | 4,373 | 4,323 | -1.1 | -43.9 | 22,719 | 17,413 | -23.4 |
| Mechanical Transmission Devices | 6,777 | 7,652 | 12.9 | 10.4 | 27,064 | 28,511 | 5.3 |
| Pumps, Compressors, Valves | 21,866 | 22,987 | 5.1 | 17.1 | 77,656 | 89,259 | 14.9 |
| Construction Engineering Machinery | 3,494 | 3,700 | 5.9 | 16.5 | 13,488 | 14,307 | 6.1 |
| Agricultural Machinery | 318 | 726 | 128.3 | 24.1 | 1,524 | 1,925 | 26.3 |
| Engines | 14,512 | 9,636 | -33.6 | -1.3 | 50,104 | 50,249 | 0.3 |
| Others | 11,101 | 12,617 | 13.7 | 13.4 | 45,736 | 46,831 | 2.4 |
| Total | 167,360 | 160,369 | -4.2 | -29.8 | 879,304 | 658,256 | -25.1 |
| Source: Industrial Economics andKnowledge Center, Industrial Technology Research Institute | |||||||
Exports
Taiwan exported NT$150 billion of machinery in the second quarter, up 18.5% from a year earlier, and will ship some NT$548.6 billion of machinery in 2011, up 9.8% from the preceding year.
The largest export category was machine tools totaling NT$38.4 billion in the second quarter, up 32.2% year-on-year. The IEK predicts the sector's exports to grow 18.8% year-on-year to NT$138.3 billion in 2011. Export value for machine-tool components and accessories will exceed NT$32.5 billion in 2011, up 35.4% from the previous year's NT$24 billion.
Taiwan exported industrial machinery totaling NT$36.9 billion in the second quarter, up 6% from a year earlier. Southeast Asia will replace China as the largest export outlet for Taiwan-made industrial machinery in 2011, with the IEKC forecasting Taiwan to export NT$45 billion of industrial machinery to Southeast Asia in 2011, up 21.3% from the preceding year. (See table III)
Table III
| Export Value for Taiwan'sMachinery Industry in Q2, 2011 Unit: NT$1 Million | |||||||
| Sector | Q1,2011 | Q2, 2011 | Q/Q | Y/Y | 2010 | 2011 (forecast) | Annual Change |
| Metalworking Machinery | 31,985 | 38,438 | 20.2% | 32.2% | 116,402 | 138,266 | 18.8 |
| High-tech Production Equipment | 8,903 | 9,444 | 6.1% | -12.8% | 41,574 | 36,479 | -12.3 |
| Industrial Machinery | 33,927 | 36,921 | 8.8% | 6% | 135,328 | 140,501 | 3.8 |
| Conveyors, Automation Machinery | 4,067 | 6,687 | 64.4% | 110.9% | 13,779 | 20,462 | 48.5 |
| Mechanical Transmission Devices | 8,201 | 9,898 | 20.7% | 42.6% | 28,719 | 35,520 | 23.7 |
| Pumps, Compressors, Valves | 17,641 | 20,904 | 18.5% | 15.7% | 69,485 | 75,786 | 9.1 |
| Construction Engineering Machinery | 1,899 | 2,424 | 27.6% | 39.7% | 7,534 | 8,437 | 12 |
| Agricultural Machinery | 1,154 | 1,224 | 6.1% | 3.4% | 4,488 | 4,729 | 5.4 |
| Engines | 2,824 | 4,139 | 46.6% | 52% | 11,389 | 13,401 | 17.7 |
| Others | 17,961 | 19,954 | 11.1% | 10.3% | 70,880 | 75,033 | 5.9 |
| Total | 128,566 | 150,037 | 16.7% | 18.5% | 499,578 | 548,619 | 9.8 |
| Source: Industrial Economics andKnowledge Center, Industrial Technology Research Institute | |||||||
Major Developments in Q2, 2011
FTATaiwan's machinery industry will be impacted by the free trade agreements (FTAs) signed between South Korea, the European Union and U.S.
Having taken effect on July 1, 2011, the FTA between South Korea and the European Union will offer zero tariffs to 90% of South Korea-made machinery exported to the EU. In addition, the U.S. Congress is expected to rectify the FTA between the U.S. and South Korea by the end of this year, with 95% of bilaterally traded products to be duty-free three years afterwards.
The IEKC says the FTAs between South Korea, the EU and U.S. will impact exports of Taiwan-made, low-value-added products. For instance, Taiwan's manufacturers of high-value-added machining centers will be more competitive than those making low-priced valves. The IEKC warns of uphill battles for Taiwan's manufacturers of lathes with South Korea who have seen rapid growth in the automotive and 3C (consumer electronics, communications, computers) industries in the EU over the past several years after several mergers and acquisitions.
ECFA
The ECFA (Economic Cooperation Framework Agreement) between Taiwan and China, which became effective early in 2011, has attracted investments by foreign machine-tool manufacturers to Taiwan.
In April this year, the Japan-based Fanuc Corp., the world's largest manufacturer of CNC (computerized numerically controlled) devices, invested approximately NT$2 billion to set up a plant in Taichung City, central Taiwan to make medium- and low-tier CNC devices; while OKUMA Corp. will invest NT$700 million in Taiwan to set up a lathe-making plant, with KURAKI to invest NT$200 million in Taiwan to produce machining centers.
Forest-Line, a French manufacturer of machine tools, is eager to cooperate with Taiwanese companies to develop the Pan-Asian market, while representatives of South Korea's Doosan Group have come to seek M&A opportunities. Many foreign manufacturers acknowledge that the ECFA is a gateway for foreign enterprises to enter the huge China market, with the agreement offering strong incentive for foreign investment in Taiwan.
Some larger, local manufacturers of machine tools and accessories also have plans for capacity expansion. For instance, Hiwin Technologies Corp., Taiwan's largest manufacturer of linear-motion devices and ball screws, will invest over NT$10 billion in the next three years to boost capacity. Fair Friend Group, Taiwan's leading conglomerate of machine tools and industrial machines, will invest over NT$1 billion in 2011 to boost capacity at its plant in the Taichung Precision Machinery Park in central Taiwan.
Recommendations
The IEKC urges Taiwan's manufacturers of machine tools to be wary of the competitive marketing strategies launched by the EU and Japan in the most lucrative Chinese market, whose demand for imported machinery will grow over 40% year-on-year in 2011; while shipments by Europe and Japan to China will rise over 50% year-on-year in 2011. In comparison, Taiwan's machinery exports to China will grow an annualized 25% this year. The IEKC believes machinery manufacturers of Japan, the EU and U.S. will sell entry-level high-priced machinery and flat-priced high-tier machinery to tap the Chinese market.
With the ECFA offering a three-to-five year buffer to Taiwan's manufacturers of machine tools to adopt locally-made CNC devices to qualify for duty-free status, the Ministry of Economic Affairs will invest over NT$100 million to help local makers to meet such stipulation, as well as facilitating opportunities by encouraging foreign manufacturers of CNC devices to set up local production, which motivates the IEKC to believe major improvements are forthcoming for the industrial structure and supply chain of the machinery industry on the island.