Risk Management

Emerging Risks & Response Strategies

As risks derived from the rapid changes in the global economy, society, and environment are diverse and complex, CSC has established an emerging risk management system to respond to and manage potential threats in a timely manner by identification, assessment and responses, and supervision mechanisms. After collecting relevant emerging risk information from internal and external sources, we have identified eight emerging risk issues and their potential impacts, which have been assessed by the managerial level for the degree of impact. The survey results indicate that the top three emerging risks the company should prioritize are the discrepancies in carbon border tax levies discrepancy leading to customers turning to imported steel products, demand slowdown or disappears due to geopolitics, and customer demand is shifting towards low-carbon products, and the relevant countermeasures had been developed.

Emerging Risk 1
Name Carbon border tax discrepancy driving customers from CSC’s products to imported steel products.
Description This refers to the impact of carbon border adjustment mechanisms (CBAM) on customer preferences for imported steel due to differences in carbon pricing between regions, which impact CSC’s domestic sales.
Impact
  • CSC, a leading domestic steel manufacturer, prioritizes products to meet the demands of domestic enterprises. High proportion of processed products are exported to countries in Europe and America, which are expected to first establish a border carbon tariff system.
  • If our country cannot implement a carbon border adjustment mechanism to respond to the influx of imported steel products, it may lead to carbon leakage issues, subjecting China Steel to unfair competition. In the 2024, Taiwan imported a total of 3.28 million tons of plates, steel sheets, and rods. Assuming that a 10% increase in imports due to carbon fee differences, it could impact China Steel’s sales by approximately 328,000 ton.
  • Assuming a carbon fee of NT$300 per metric ton of CO2 emissions and an average carbon emission of 2 metric tons per ton of steel produced, China Steel Corporation sold 7.5 million tons of steel last year. The estimated impact on profitability is approximately NT$4.5 billion.
Mitigating actions
  • Under the announcement of the three subsidiary drafts of carbon fee (Carbon Fee Charging Measures, Autonomous Reduction Plan Management Measures, and Designated Targets for GHG Reduction for Carbon Fee Payers), CSC actively participates in meetings related to carbon fee subsidiary laws to advocate for reasonable levies, maintaining fair competition among the industry.
  • The current Climate Change Response Act has announced provisions for related taxes and fees on imported products of the same type. CSC has suggested there should not be double regulation and equivalent taxes and fees should also be levied on imported products in the meetings with the Ministry of Environment.
  • Via industry-government meetings, media and other channels, CSC has kept communicating with the government. Responding to 2024 Industrial Association’s industry development dilemma, CSC proposed establishing a mechanism for the verification and registration of the carbon footprint of imported steel products.
Emerging Risk 2
Name Demand slows down or disappears due to geopolitics
Description Following the inauguration of the new government, China immediately conducted military exercises, raising clients’ awareness to diversify supply sources as a mitigation against the risk of cross-strait conflict. This has led to clients transferring part or all of their orders to foreign steel mills.
Impact Due to end customers diversifying geopolitical risks across the strait, such as wars or military exercises blocking the Taiwan Strait, it affects the export of steel products, and downstream manufactured goods. Consequently, orders are transferred to other CSC’s competitors. Apart from potentially affecting the company’s direct export orders, the indirect exports of downstream customers are also impacted, thereby reducing the domestic sales for CSC.
Assuming a 5% shift in domestic orders, based on CSC’s (including Dragon Steel Corporation) domestic sales volume of 6.05 million tons in 2023, there could be a potential loss of 302,500 tons in orders.
Mitigating actions
  • To mitigate the loss of domestic orders to other overseas markets. CSC continues to monitor the overseas layout of downstream customers, while also supporting it with the group’s overseas production and sales bases. Through overseas production bases such as CSVC, CSC STEEL SDN. BHD., CSCI, and the overseas cutting factories under CSGT, it ensures a stable supply for the group and assists customers in developing new overseas markets.
  • In 2024, the cumulative sales of steel materials from overseas production bases such as CSVC, CSC STEEL SDN. BHD., and CSCI amounted to approximately 979,000 tons, representing a 15% growth compared to the same period last year, continuing to expand the group’s supply channels.
Emerging Risk 3
Name Customer demand is shifting towards low-carbon products
Description Due to CSC’s inability to fully meet customer demand for green steel, customers have partially or completely shifted their orders to electric furnace-produced steel products.
Impact Our country has passed the ‘Climate Change Response Act,’ establishing a carbon fee collection mechanism and planning carbon trading standards. The market demand for green steel materials will increasingly grow. CSC plays the role of a bridge in Taiwan’s steel industry. If we cannot promptly adapt to the trend, there is a risk of losing orders.　　
Mitigating actions
  • National policies that encourage or mandate the use of low-carbon products by consumers will contribute to the production scale of low-carbon steel materials.
  • Develop and declare carbon-neutral steel materials, allowing customers to follow the same declaration model to produce downstream products that comply with carbon neutrality..
  • In response to the demand for green steel materials, CSC continues to develop recycled content (RC) materials. By increasing the proportion of recycled scrap steel, carbon emissions are reduced to meet the needs of downstream customers such as computers and home appliances for low-carbon products.