Second of three parts
THE Philippine Iron and Steel Institute (Pisi) wants government action on a package of reforms aimed at boosting the competitiveness of the import-dependent industry, particularly now that the Association of Southeast Asian Nations integration is at hand.
The iron and steel industry said this is the right opportunity to address its pressing problems, as the Department of Trade and Industry (DTI) has moved to jump-start the revival of the manufacturing sector, with an overall goal of increasing manufacturing contribution to gross domestic product (GDP) from the current 23 percent to 30 percent by 2020.
“There are a lot of governance issues why we’re attracting so few investments in the steel industry. There’s the infrastructure, transportation issues and electricity. On average, these factors account for an average 30 percent of the production of steel,” said Rolando Narciso, member of the Pisi and former National Steel Corp. president.
Investments in basic iron and steel making are on an erratic trend. Based on available data, the Board of Investments (BOI) registered P 35.4 billion worth of fresh capital infusion in the industry in 2012, which rose to P 42.3 billion in 2013. However, a low of P297 million was registered in 2009. In 2003 the industry received P1.5 billion in investments.
“There are no investments in flat steel, just long products. We’re importing most of our requirements for flat steel from China, same as other Asean countries,” said Roberto Cola, president of Pisi.
According to data from the BOI, there is no local production of hot- rolled coils (HRC), hot-rolled plates and cold-rolled coils (CRC), meaning all requirements for these intermediate materials for flat products are being imported.
Investments in the industry are concentrated toward long-products manufacturing, as the cost differential between producing the higher-valued flat products and importing them are too close.
Despite this disadvantage, the local steel and iron industry, in its roadmap, is batting for new capacities for the flat-products sector, as well as expansion of existing capacity in long products with the help of foreign players
Given the capital-intensive nature of an integration project, more foreign direct investments (FDI) are needed for the country to have its truly integrated steel mill. Today this remains an elusive dream.
Considering the Philippines’s standing as an FDI laggard in the Asean region, the industry said the bigger picture of improving the over-all investment environment—not just for steel—must be looked at.
As with most industries, the problems of prohibitive logistics and electricity costs, as well as rampant smuggling, are also plaguing the iron and steel industry.
On smuggling, Pisi said about 20 percent to 25 percent of importations yearly went in without the payment of proper taxes and duties. In 2014 smuggled crude steel was estimated at about 1.1 million metric tons (MT).
“Government implementation, of course, is always an issue on these matters,” Narciso said, adding that stricter enforcement is necessary.
Pisi, in a position paper, said the light sections—galvanized iron (GI)/prepainted galvanized-iron sheets (PPGI), CRC, HRC and pipes—are the most common steel and iron products that are being smuggled into the country.
Last year a player in the domestic steel-roofing manufacturing industry pushed for safeguard duties on imports GI and PPGI imports, as these were reportedly hurting the local industry.
The player, Puyat Steel Corp., claimed that there is underutilization of installed capacity for roofing materials due to the unfair competition posed by the importation of the same products.
The company said local steel producers could only produce 450,000 MT of roofing materials, or only 60 percent of the installed capacity of 750,000 MT.
The group added that local PPGI production could meet the demand for prepainted sheets, but capacity utilization declined due to the overwhelming presence of cheaper substitutes from China.
In a decision earlier this year, however, the Department of Trade and Industry (DTI) dismissed the petition for safeguard measure.
Government action must be more responsive to the industry’s needs, the group urged.
“In other countries, their governments are very proactive in the steel industry. India has its own Ministry of Steel Industry and Malaysia has its Steel Council. In Indonesia, the filing of [petition for] protective tariffs against steel imports before the World Trade Organization is often done and with haste. Here it’s hands off,” Narciso said.
To this end, the industry is seeking a revival of the Presidential Iron and Steel Committee created by then-President Fidel V. Ramos to challenge the private sector to integrate the iron and steel industry. This was discontinued reportedly because it failed to gain any support from the private sector during that time.
Other actions urged by the iron and steel industry is the acquisition of the shuttered flat-steel facilities of Global Steel’s plant in Iligan through the National Development Corp. (NDC), an attached agency of the DTI. The NDC, according to the group, should spearhead projects that basic industries like iron and steel need.
Moreover, the industry is also pushing for the government—through the NDC—to start feasibility studies on an integrated steel mill (ISM) project, with the aim of using the country’s rich resources of iron ore that could be used for a specific type of steel-making technology.
“There have been several reports of big-volume extraction of iron sands in Region I. This information has to be investigated further, particularly on the quantity or quality, specific source and size of remaining supply or reserve, because there is a distinct possibility that these materials are suitable,” according to the position paper of steel industry stakeholders submitted to the BOI.
“What we have to do now is to start the feasibility studies so we know what kind of technology to use, and determine the amount of investments we can attract for integration projects,” Narciso said.
According to the stakeholders’ position paper, the ISM project should be done by the DTI and BOI, NDC, the departments of Environment and Natural Resources, and Energy.
Cola and Narciso stressed that with the country’s apparent steel consumption estimated to reach 20 million MT by 2030, and with the integration of the domestic steel industry far from reality, import dependence is sure to rise—from the present 80 percent to 100 percent. This means total annihilation of the domestic steel industry.
To be continued