Big catching up needed for Phl steel industry

By Satur C. Ocampo
At Ground Level | The Philippine Star

Positive news for the nation’s struggling iron and steel industry turned up this week: Seven domestic banks have pooled a P4.4-billion syndicated loan to finance the construction in Plaridel, Bulacan of a modern reinforcing-steel-bar rolling mill, with an annual capacity of 1.2 million metric tons.

The loan package is billed as a “maiden peso syndicated offering” and the “largest peso-denominated syndicated term loan facility to date (for) a steel mill in the Philippines.” Definitely this is a welcome development: medium-size Philippine banks pooling resources to fund the expansion of an important downstream segment of a key industry that government has neglected to nurture for decades.

Kudos to the Philippine National Bank, China Banking Corp., Philippine Veterans Bank, Robinsons Bank Corp., United Coconut Planters Bank, Bank of Makati, and China Bank Savings. Also to PNB Capital and Investment Corp., the sole issue manager which arranged the loan jointly with China Bank.

Similarly SteelAsia Manufacturing Corp. deserves praise for forging the peso loan for its wholly owned subsidiary, Del Pilar Steel Inc., which will operate the Plaridel mill. Said to be the largest and most modern reinforcing steel bar producer in the country, SteelAsia has strategically set up rolling mills in Cebu, Davao, and Cagayan de Oro. It’s planning another one in Southern Tagalog. The Plaridel mill will expand the firm’s annual production from 2.1 million metric tons to 3.3 million metric tons by 2017.

Yet this additional capacity will supply but a small portion of the country’s fast-growing consumption of steel products – placed at 6 million metric tons in 2012 and projected to more than treble to 20 million metric tons by 2030. That’s a lot of catching up in domestic steel production.

Ironically, according to the Philippine Iron and Steel Institute, about 60 percent of our steel product consumption in the last five years was imported from China, Russia and Japan. Worse still, the Philippines has been importing 80 percent of the required slabs and billets: the crude-steel main inputs for the rolling mills to manufacture long and flat steel products.

It’s small comfort that four other Southeast Asian countries are also net importers (about 2/3 of their consumption) of iron and steel products. They are Indonesia, Malaysia, Thailand and Vietnam. But according to data provided by the Southeast Asia Iron & Steel Institute, these four countries are well ahead of the Philippines in moving toward the integration of their iron-and-steel-making (or ISM) capacities, including the production of slabs and billets.

In fact the PISI (an affiliate of the SEASI) acknowledges that the Philippines has zero ISM capacity compared with the four Southeast Asian neighbors. Their ISM capacities (in million metric tons) and degrees of self-sufficiency are: Malaysia, 5.1(57 percent); Indonesia, 5.8 (46 percent); Thailand, 6 (37 percent); and Vietnam, 9.1(81 percent).

It did not use to be this way for the Philippines. In 1968 the government, through public bidding, awarded the establishment of the Iligan Integrated Steel Mills Inc. to the Fernando Jacinto family, which 10 years earlier had set up the Jacinto Steel Corp. (manufacturer, until now, of galvanized iron sheets).

The IISMI was the first integrated steel mill to be built in Southeast Asia. It began partial operations with initial success and much promise. But then it suffered from various problems – not the least of them the intervention of Marcos’ martial law dictatorship. It’s not possible to review in this space what happened in detail. The Marcos regime took the firm away from the Jacintos, renamed it National Steel Corp. Over the subsequent years, the mill was sold to Malaysian and then Indian investors who both failed to run it efficiently and profitably.

Five years ago the Indian investors shut down the mill and the firm, then named Global Steel. The government did nothing. The shutdown deprived the country of its sole producer of hot-rolled coils and plates (semi-processed inputs) and its dominant producer of cold-rolled steel (finished product). The closure of the upstream sector for making flat-steel products left downstream local mills with capacity only for long-steel production.

The cutoff in flat-steel output – with no new investments coming in because the production cost is about just as much as in importing flat steel – plus the deficit in production of other steel products led to dependence on importation.

To resolve this problem of deepening import dependence and to steer the iron and steel industry toward the necessary integration, the PISI urges the following steps:

• Revive the Presidential Iron and Steel Committee to pursue the integration project.

• Government to provide incentives for local iron and steel firms to merge and consolidate their facilities in order to achieve economies of scale and ensure the utilization of idle capacities;

• Government, through the National Development Corp., to acquire and operate the dormant flat-steel capacity of the Iligan mill;

• The NDC to start feasibility studies on the ISM project, particularly by looking at the prospect of utilizing the Philippines’ rich iron ore resources using the appropriate steel-making technology; and determining the required amount of investments;

• In drawing up the most feasible means to realize the integrated steel mill project, involve the joint and coordinated efforts of the NDC, Department of Trade and Industry, the Board of Investments, the Department of Environment and Natural Resources, and the Department of Energy.

Asean economic integration by the end of 2015 – in just a few months! – will mean more intense competition ahead. Failing to act decisively can worsen the country’s steel-import dependence from 80 percent to 100 percent, industry players warn. Is anybody listening?

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E-mail: satur.ocampo@gmail.com
Published in The Philippine Star
October 17, 2015