Recently, media reported that due to optimism about the development potential of mainland China's domestic demand, Formosa Plastics Group, one of Taiwan's largest manufacturers, is expanding its layout in the mainland. Its subsidiary, Fujian Fuxin Special Steel Plant, is expected to reach full production in August. To make the product mix more complete and enhance sales competitiveness, Formosa Plastics plans to invest an additional $500 million to expand a cold-rolled stainless steel coil plant with an annual capacity of 400,000 tons.

In response, a relevant person from Formosa Plastics Group headquarters told the Daily Economic News reporter that the proposal has not yet been approved by the board of directors, and the expansion investment amount is still to be finalized.

However, the person stated that Formosa Plastics' plan to increase investment in the Fujian special steel project has been confirmed. Fujian Fuxin Special Steel Plant is located in Longchi Industrial Park, Zhangzhou City, Fujian Province, and its products include stainless steel billets, black coils, and white coils. The planned cold-rolled plant is an expansion project with a relatively fast construction schedule. After being submitted to the board of directors, construction will begin with a 1-2 year timeline.

Expanding in the Steel Industry Against Market Trends

Previously, Li Zhicun, chairman of Formosa Fuxin Steel, told the media that the Fuxin stainless steel plant, with an investment of $1.314 billion, started production this year. The first phase has an annual capacity of 720,000 tons of stainless steel hot-rolled coils, which can be increased to 900,000 tons. Formosa Plastics has set the mainland domestic market as its main target, positioning its products for high-end applications such as 400-series kitchenware and automotive lamps. Based on a rough estimate of 720,000 tons annual production, Fuxin will contribute 20 billion yuan in output value.

Li Zhicun also pointed out that nickel is an important raw material for stainless steel, but its price fluctuates sharply, which is a major variable in operating costs. The layout of Fujian stainless steel products will focus on 400-series stainless steel containing chromium, titanium, and niobium, supplemented by 300-series mainly containing nickel and chromium to develop the market, in order to reduce the risk of raw material fluctuations.

According to him, the 400-series is priced at about $1,100 per ton, roughly half the price of the 300-series. 400-series stainless steel is magnetic and is mostly used in induction cookers, automotive exhaust pipes, kitchenware, etc.

The Fujian Fuxin Special Steel project is located in the Zhangzhou Taiwanese Investment Zone and is being built in two phases. Phase II plans to expand steelmaking capacity to bring total hot-rolled coil capacity to 1.44 million tons and to build an advanced cold-rolled production line. It is roughly estimated that after both phases are fully operational, the output value could reach 40 billion yuan.

According to information on Fuxin Special Steel's official website, in its stainless steel product mix, 300-series stainless steel will account for 51% of output. Based on the current first-phase capacity, annual output will reach 367,200 tons; after the second phase is completed, it will reach 734,400 tons.

Fuxin believes that by introducing the most advanced 400-series high-cleanliness nickel-free stainless steel production process from Japan's JFE Steel Corporation, it is committed to producing high-quality, high-cleanliness, low-crown, and high-flatness nickel-free stainless steel hot-rolled coils. The hot-rolled plates can be as thin as 1.4mm, capable of supplying hot-rolled coils under 3mm thick, which are rare in the mainland.

As Formosa Plastics Group's first project in the steel industry, Fujian Fuxin has a planned total investment of $2.2 billion and is the largest stainless steel production project in Fujian Province.

Industry Overcapacity Crisis

Although Formosa Plastics Group is ambitious in its steel business layout, industry insiders believe that under the current overcapacity situation in the entire steel industry, Formosa Plastics' counter-trend expansion carries considerable risk.

Some also believe that in the first half of the year, the steel industry still had overcapacity, but compared with other products, only stainless steel showed a scissors-like trend. Against the backdrop of long-term structural adjustment in the steel industry, high-value-added stainless steel products are a future direction. Formosa Plastics Group's choice of stainless steel products as a move in its steel industry layout also conforms to industry trends. However, currently, the domestic stainless steel production "giant" TISCO has an annual capacity of about 3 million tons, and Fuxin will reach half of that capacity, which is already enough to meet the demand of the entire southern market. Although Fuxin emphasizes that it has introduced internationally leading production lines to ensure product quality, its stainless steel products are still products for ordinary demand.

So why did Formosa Plastics choose to enter the steel industry at this time? In response, a relevant person from Formosa Plastics Group told the Daily Economic News reporter that they remain optimistic about the mainland market potential.

According to Fuxin's construction timetable, the project was personally confirmed by Wang Yongqing, the "god of management" in Taiwan, before his death. The project was approved by the National Development and Reform Commission and the Ministry of Commerce in April 2007, with a planned total investment of $499 million at that time, to be completed in 2009. The Chinese partner is Fujian Sangang (Group) Co., Ltd. In February 2008, it was reviewed and approved by the "Investment Review Committee of the Ministry of Economic Affairs" of the Taiwan region. However, the project was suspended for a time and officially started only in July 2011.