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Taiwan Machinery Industry Faces Currency Headwinds

Jan 12, 2015 | By CENS

By KEN LIU

Taiwan's machinery industry will likely miss the projected revenue goal of NT$1 trillion (US$32.25 billion at US$1:NT$31) for 2014 due to the island's less competitive currency versus the Japanese yen and South Korean won, according to the Taiwan Association of Machinery Industry (TAMI). The association, which represents around 2,600 manufacturers on the island, also cites a strong sales drive by South Korean machinery makers among the headwinds facing the local industry.

According to TAMI, Taiwan shipped US$19 billion of machinery in the first 11 months of 2014, up 6.4% year on year. The island's machine-tool industry exported US$3.43 billion of equipment, growing at lower-than-expected rate of 6.2% year on year.

TAMI Chairman S.C. Hsu points out that local machinery makers received around US$1.9 billion of orders monthly in the first eleven months of 2014, but they shipped only US$1.7 billion per month. He ascribes the US$200 million gap mostly to the wait-and-see attitude of foreign buyers, who have placed orders but hesitated to pay in order to see if the won and yen will continue devaluing faster than the New Taiwan dollar.

Hsu noted that the 35% depreciation of the yen has led to Japan's machinery shipments exceeding 100 billion yen (US$833.33 million) for the 15th month since September 2013; while the won has depreciated 10.6% since 2007 versus NT-dollar's 8.6% revaluation.

Hsu said that the relatively strong NT- dollar could continue to weigh on Taiwan's machinery makers into 2015. He also noted that Japanese machinery makers have cut prices of their greenback-denominated, high-performance machines on the global market.

The NT-dollar traded at 30.18 per U.S. dollar on average in the first 11 months of 2014, devaluating 1.84% from the same period of 2013, and has been trading around 31.7:1 in Dec. However, the Korean won has fallen further helping South Korean machinery makers to aggressively compete for orders in tandem with their strong sales push. For instance, the Doosan Group has announced that it is cutting the prices of all its product series by US$3,000 to 10,000 per unit, representing an approximately 10% discount.

South Korea's international trade competitiveness has been further strengthened by the Free Trade Agreement (FTA) inked with the European Union, the United States and mainland China. These pacts exempt Korea from duties and put Taiwan exporters at a disadvantage.

Hsu suggested that the Taiwanese government let the NT-dollar fall to 32 per U.S. dollar to shore up Taiwan's exporters. He also advised that local machine-tool makers shorten lead-times for rush orders and that the government implement trade policies and accelerate FTA talks to help local machinery makers compete on an equal footing with South Korean and Japanese manufacturers.

Hsu feels that the time is right for the NT-dollar to further fall in light of the recent plunges of crude oil prices, which have made imports to Taiwan less expensive.


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