Can we still build a steel industry?

Members of the Philippine Iron and Steel Institute (PISI) have clearly pointed out that the country is very much import dependent even as the remaining steel sector players try to maintain their ability to produce some midstream steel products such as rebars, angle bars, galvanized and other metallic-coated sheets and pipes and tubes.

According to the PISI, more than 60 percent of the country’s billet requirement to produce midstream steel products are imported.  Import dependence on finished steel products such as sections and sheet piles, rails, wire rods, steel plates, hot-rolled sheets and strips, cold rolled sheets and strips, tinplates, galvanized sheets, other metallic-coated sheets and pipes and tubes is at 86 percent.

A large portion or about 80 percent of steel consumption is for construction. These include such steel products as rebars, angle bars, channels, beams, sheet piles, wires and wire products, GI, zinc, aluminum and pre-painted sheets and pipes and tubes.

Steel consumption for fabrication accounts for 15 percent and these are ship plates, plates, HRC, CRC, EGI and other coated sheets, specialty bars, rods, stainless and alloy steels.

For packaging, steel consumption accounts for four percent and consists of tin plates, tin-free steel and CRC. The remaining one percent of steel consumption comprises other bars and rods, sections, plates, other coated sheets, machinery and spare parts.

Thus, the PISI said, the development of downstream manufacturing and other industries is hampered by the lack of domestically produced steel products and results in higher costs.

The PISI is still hoping that based on the government’s iron and steel roadmap drawn up in 2012-2013, the country will become a majority producer of quality of steel products for domestic users by 2030, supplying up to 70 percent of the tonnage of steel consumption or between 9.8 and 10.1 million metric tons.

However, the PISI admits that the government must once again take the lead in building up our steel industry sector even at least for “supply security.”

The other catch, of course, is attracting an investor to finance  a blast furnace facility that would be the core of an integrated steel manufacturing industry.

Mistakes of the past

The plan to build our own steel industry started as far back as the 1950s through the National Shipyard and Steel Corp. (NASCO) and was acquired by the Jacinto family,  which eventually became the Iligan Integrated Steel Mills Inc. or IISMI. Unfortunately, IISMI ran into financial trouble by the 1970s and its assets were eventually taken over by the Development Bank of the Philippines.

By the 1980s, the government of former president Ferdinand Marcos Sr. had embarked on an ambitious industrialization program involving 11 sectors, including the steel sector and thus, the National Steel Corp. took over the assets of IISMI.

NSC’s initial years were a struggle, but it eventually stabilized and started performing well in terms of output and financial performance according to “NSC- A Winner Turned Loser” written by the Men of Steel.

Data showed that “domestic market share for flat steel products averaged at 62 percent  up to 1994 (39 percent for hot-rolled, 75 percent for cold-rolled and 69 percent for tinplates). With the completion of its new facilities, market share was expected thereafter to hit 80 percent. Substantial exports (40,000 MT per year), likewise, were actually being made to China (tinplates), Indonesia (TMBP) and US-West Coast (CRC) to validate NSC’s competitiveness in terms of product quality and cost thereof (including ocean freight) in the much-tougher foreign markets.

“To address its raw material requirements, NSC procured slabs initially from Australia’s BHP, Korea’s POSCO and various East European integrated steel companies.  Upon expansion of the Iligan hot-rolling mills, NSC entered into a long-term supply agreement with Brazil’s Companhia Siderurgica de Tubaron as arranged by Mitsui, Mitsubishi and Kawasho for one million MT per annum.

“Financial performance was good – profitable every year despite several political, social, economic and natural crises of the 1980s. With its assets growing continuously from reinvestment of earnings, the company enjoyed strong support from banks for both long-term project financing and short-term working capital loan requirements.

“NSC’s net worth started with a token paid-up capital of P20 million in 1974.  With yearly profits and retention of earnings, its net worth hit P12 billion prior to its privatization in 1995.  At this point, NSC’s total assets were at the level of P32 billion – a big chunk of the increments coming from its aggressive expansion/upgrading program.”

Things started unraveling for NSC, however, by 1993 when the government decided to privatize NSC and ownership was turned over to the winning Malaysian bidder,  Wing Tiek Holdings Corp. (a member of Malaysia’s Westmont Group of Companies), with the five percent minority participation of Marubeni Corp., in 1995.

Accusations of mismanagement by the Wing Tiek group and failure to fulfill its commitments to the Philippine government led to a major loss of P2 billion in 1996 and grew to P8 billion prior to its 1999 closure. Expansion plans were shelved and the plant facilities started deteriorating.

There were of course claims that NSC’s problems were aggravated also by tariff cuts and dumping of cheap imports.

All of these contributed to the deterioration of the company and its operations.

Another attempt to revive the NSC was made in 2003 when the Indian Ispat Group took over NSC’s assets from the group of creditor banks and the company was renamed Global Steel Philippines Inc. or GSPI.

Long story short, the GSPI continued to ran into various financing and operational problems and legal disputes so much so that by 2011 it was already seeking arbitration in Singapore against the selling banks “alleging that the selling banks had not delivered the appropriate asset titles, thereby preventing GSPI from raising the working capital funds necessary to run the business at economic levels.  The banks countered by stating that GSPI was in payment default and, thus, titles could not be delivered.”

The legal fight sealed the fate of GSPI so that by 2014, the Iligan steel plant was basically abandoned and left to rot.

According to the analysis of the Men of Steel, “Hopefully, it (NSC) still has a role in the new steel industry roadmap that is diligently being put together by DTI with the support of NEDA and other government agencies and private sector associations. Today, the Iligan plant stands deserted, motionless, quiet and decrepit – a far cry from what it used to be.  Without any doubt, it most definitely symbolizes the shortcomings of the privatization program of the 1990s and the unwarranted governmental indifference thereafter. But, much more than that, it is a reminder of a terrible mistake that can still be righted today, provided –  this time around – matters pertaining to vital industries are handled with more foresight, vigilance and resoluteness.”

Question now is, will the still to be appointed Trade and Industry Secretary be willing to take on the challenge of building a steel industry so that the country can at least have supply security if not complete self-sufficiency, especially at this time when the government does not have enough resources to meet all of its funding requirements for pretty much everything else?