PH needs fully integrated steel industry to be competitive

(Third of a series)

Reviving the local steel industry, while challenging, is crucial not only to meet future demand and requirements but also to help in the government’s thrust of ensuring inclusive growth.

This industry, experts say, affects a wide range of related sectors, manufacturing activities and interlinkages, which can generate the much-needed revenue and jobs across the country given its high multiplier effect of 2.7. This means that every new investment of P100 million will lead to a higher domestic output of P270 million; an additional household income of P24 million; and additional 117 new jobs, according to the proposed iron and steel industry roadmap.

Among the sectors that use steel extensively include construction (residential, commercial, industrial, and institutional); infrastructure; pipe-making; shipbuilding and repairs; cans/containers; automotive/transport; appliances; fabrication; service centers; and furnitures/furnishings, among others.

Former National Steel Corp. president Rolando Narciso stressed: “It is among the vital industries… We got distracted (by the gains made in) overseas Filipino workers’ remittances and the services sector that we forgot the industry.”

The questions now loom: Where is steel industry lacking? What are the missing links? How can this industry forward? What needs to be addressed and who should spearhead these changes?

For industry experts, the ultimate target is to have an integrated steel industry, which the Philippines currently lacks.

This means that by 2030, the country should already have a certain degree of self sufficiency in both the upstream and downstream sectors—ideally at about 70 percent.

The upstream segment covers iron making and steel making, which produce pig iron, sponge iron, direct reduced iron, as well as slabs and billets. The mid-stream and downstream sectors, meanwhile, cover the production of flat products (hot rolling, cold rolling, tinplating, galvanizing, prepainting, rollforming) and long products (such as bar mills, rod mills, nails, wires, structural mills).

Based on a comprehensive study by former NSC officials and experts, the steel industry’s present non-integrated state has limited production capacity of only 21 percent of total demand in 2012. There is a fragmented supply chain, with the biggest supply chain gaps seen in flat steel, which they claim to be primarily due to the decline and eventual shutdown of NSC’s Iligan facility, the only plant in the country which had hot rolling mill and and tinplating lines. Further aggravating the situation was the shut down of the three cold rolling mill facilities of Steelcorp in 2009.

“As a consequence, there is currently a lot of no-choice importation of hot-rolled products, cold-rolled products and tinplates… The absence of upstream integrated steel mill facilities is most obvious—making the industry fully dependent on imported slabs for flat products and significantly dependent on imported billet for long products,” they said in a paper on the steel industry.

The move should obviously be geared toward filling these supply chain gaps, and address the so-called “horizontal binding constraints” that impede the sector from closing these gaps and pursuing its self-sufficiency goals.

If adequately addressed, these constraints—called “key enablers” by the Men of Steel—are expected to help Philippine enterprises compete on equal footing with their Asean counterparts.

These were identified as infrastructure (referring to roadways, bridges, airports, seaports, farm irrigation systems, among others); the availability, reliability and cost of electricity; transportation costs; smuggling; investment incentives; access to credit facilities; soft infrastructure; good governance and foreign trade agreements.

“(These) concerns will definitely need early solutions if Philippine business firms are expected to survive and thrive under the new economic order. We shouldn’t leave them with these handicaps as these could be too heavy and cumbersome to carry into the larger regional business battlefields,” the paper stated. (To be concluded)