12th National Convention on Statistics (NCS)

EDSA Shangri-La Hotel, Mandaluyong City

October 1-2, 2013

GROWING FIRMS OF STEEL: A COMPETITIVENESS ROADMAP FOR THE

PHILIPPINE IRON AND STEEL INDUSTRY

by

Roberto de Vera, Leandro Tan and Gilbert Garchitorena

For additional information, please contact:

Authors name : Roberto de Vera

Designation : Assistant Professor
Affiliation : School of Economics, University of Asia and the Pacific
Address : Pearl Drive, Ortigas Center, Pasig City
Tel. no. : +632-6370912
E-mail : roberto.devera@uap.asia
GROWING FIRMS OF STEEL: A COMPETIVENESS ROADMAP OF THE
PHILIPPINE IRON AND STEEL INDUSTRY

by

Roberto de Vera, Leandro Tan and Gilbert Garchitorena

 ACKNOWLEDGEMENTS

We wish to thank Mr. Roberto Cola and the PISI staff for supporting the project team at each
stage of the industry roadmap project.

We wish to thank all the industry representatives who shared their insights and information on
the iron and steel industry which we incorporated into the industry roadmap report.

We wish to thank Dr. Peter U for giving us his time and advice to move this project forward in its
initial phase.

We wish to thank Dr. George Manzano, Dr. Cid Terosa, and Mr. Henry Ligot for writing the
trade, industry linkages, and technology sections of the report.

We wish to thank our project staff, Ms. Elsie Tingzon, Ms. Glenda Hitosis and Ms. Arlene
Idquival, for their assistance in organizing the industry forum and encoding the industry
statistics.

i
 EXECUTIVE SUMMARY

Faced with weaker markets and slower growing economies in the past decade, the
Philippine iron and steel industry saw firms closing and production capacities decreasing. But
given a bullish investor community eager to channel funds into projects that meet the mostly
untapped demand for roads, houses and offices of an expanding middle class, opportunities to
build new plants and make new products beckon for the firms that have weathered this
economic storm. Steel companies can seize these opportunities by continuously upgrading
their workforce and processes to ISO standards to attract the investments needed to expand
production capacities and product lines. Government can help steel firms in their new ventures
to make world class products by reducing the smuggling of steel products and thus evening the
playing field between local and foreign producers. As government continues to solve the
problems reducing the industrys competitiveness, more steel companies can adapt the
successful practices of producing steel during off-peak hours to reduce power costs and
building plants closer to the markets they serve to reduce freight costs.

The current state of the Philippine iron and steel industry is at a critical stage. The sector
is currently operating far below its full economic potential. As of 2010, the sector directly
employs about 15,000 workers, earns P60 billion in revenue, invests P1 billion in capital
expenditures and produces a gross value added of about P47 billion, which is 0.7% of the
countrys GDP. These significant contributions to the national economy are based on an
apparent steel consumption of 4 million metric tons of which less than half are produced
locally. It is also a level which should be 7-8 million metric tons which was the level required by
Malaysia and Thailand to attain their newly industrialized country status from GDP per capita
levels that have been reached by the Philippines only now.

The low steel consumption can be attributed to the numerous economic shocks faced by
the industry in the last decade. The demand for steel products has been constrained by the
dearth in private and public construction following the Asian Financial Crisis in late 1990s, the
Fiscal Crisis in early 2000s and the Global Financial Crisis. The mismanagement and
subsequent halt in the commercial operations of Global Steel Philippines in 2007 caused sector-
wide supply disruptions as the firm was the dominant producer of cold rolled steel and the
countrys sole producer of hot rolled coils and plates which are the vital raw materials for the
rest of the downstream industry. Consequently, sector output and employment fell by about 10
percent. In addition, competition from cheap imports is expected to become more serious as
tariffs disappear within the ASEAN Economic Community, and as global steel prices fall as the
surplus steel capacity in China increases in line with the impending economic slowdown in that
country.

The adverse conditions of the business environment facing the steel industry have been
a major factor that has held back domestic steel production for over a decade. The current wave
of consolidation has led to at least six major steel industry firms that were reportedly not
operational in 2010 as some steel manufacturers have shifted to the trading of steel products
instead to survive the prevailing market conditions. Local production of hot-rolled coil/sheet,
cold-rolled coil/sheet, tinplates, and wire rods has been completely displaced by cheap imports
particularly from China. As a result, it is only in 2011 that domestic steel production levels
reached the historic high of 3 million metric tons which was last attained in 1997.

ii
 The negative effects of the sector consolidation have reduced the present capacity of
domestic steel producers to service the growing demands of an industrializing economy. The
detrimental effects extend beyond the economic dislocation to workers, suppliers and
downstream stakeholders. Domestic iron and steel production remains critical to construction
and the manufacturing of high-end industrial goods such as parts and machineries equipment
for agriculture, construction, food manufacturing, mining, and the building of appliances,
vehicles and ships. Idle steel plants not only lower capacity utilization rates -- which are now
virtually zero for the hot-rolled coil/sheet, cold-rolled coil/sheet, tinplates, and wire rods -- but
also reduce the competitiveness of the other local steel producers along the value chain. The
self-sufficiency rate of the industry has been placed at a low 46 percent, down from 55 percent
in 1994. Its backward linkages with supplier sectors are now estimated to be stronger than its
forward linkages with the users of finished steel products, particularly construction and
manufacturing. The lack of an integrated steel production system within the country and the
hallowing out of the flat steel sector has led to the fragmentation of the industry into its two main
product segments long and flat steel products each distinct with its own set of product
characteristics, market drivers, operating environments and investment opportunities such that
their business interests are no longer necessarily identical in certain cases. More importantly,
the resulting overreliance on the importation of steel products and the consequent
unemployment of local steel plant workers are inconsistent with the long term goals of inclusive
economic growth stated in the Medium Term Development Plan of the government.
Notwithstanding the underdeveloped state of its supply linkages, the iron and steel industry
remains a major driver in raising national output. The domestic output multiplier of the industry is
higher than other sectors including construction, private health services, transportation, financial
intermediation, wholesale and retail trade, other personal services, real estate, nickel mining,
private education and mining / quarrying.

The clear alternative to the simple trading of steel products is to compete anew in the
manufacture of finished steel products, particularly in flat steel products which have a higher
value-added than long steel products. The pre-requisite is to re-establish the supply linkages
across the steel production process from iron / scrap to semi-finished goods and to finished
steel products. The significant increase in the local production of billets (+65%) and bars (+49%)
from 2007 to 2011 sets the stage in anticipation of a gradual recovery in the real estate sector
and the implementation of public-private partnership projects to renew infrastructure spending.
The proposed plan is to expand capacity not just for long products that primarily support
construction -- which constitutes about 80% of steel demand but also to develop capacity for
flat products which offers higher value-added inputs to downstream sectors (e.g. auto and
shipbuilding). The replacement of imported inputs with locally produced steel products will
increase existing multiplier effects of new investments by as much as 50 percent. In this case,
industry estimates show that a P100 million new investment in the sector will lead to
corresponding increases on national economic output (+P350 million), household income (+P32
million) and permanent employment (+155 new jobs). As earlier discussed, it is within the
capabilities of most steel firms to upgrade their capacities and product lines that attracts the
investments needed to expand their production capacities and broaden their product lines.

The plan is consistent with the economic opportunities of developing both domestic and
export markets for Philippine steel products. The comparative advantage of Philippine steel
exports has increased between 2003 and 2011 but still pale in comparison to the export
performance of other ASEAN nations in the global steel market. Better governance and a young
skilled labor force are expected to encourage government, investors, and families to invest in
roads, manufacturing companies, schooling and health. This will enlarge the middle class based
market, sustain the long term growth of the economy, and expand production in the

iii
construction, housing, packaging, and possibly the shipbuilding industries that raises the
demand for steel products. The reality of regional production chains in manufacturing plus the
robustness of the ASEAN market should encourage local industry players to explore joint
ventures with foreign players as a strategic play in forming part of this regional production chain.
Investment opportunities abound for projects that expand production capacities for current steel
products for the local market and that introduce capacities to build new products particularly for
the flat products market segment. For example, investing in new equipment with the energy-
saving and environmental technology, and in larger production capacity creates economies of
scale that reduces the operating costs in a sustainable manner. A large, young and skilled
workforce and an expanding middle class with mostly unsatistifed demands for consumer goods
are twin attractions for foreign steel producers to enter joint ventures with local companies to
produce products for this expanding local market.

The competitiveness roadmap laid out by the iron and steel industry has set a long term
target of increasing steel production to 20 million metric tons by 2030. The figure is in line with
the vision of the industry to be able to supply 70% of the tonnage required for sustainable
economic development in 2030. This requires the implementation of several key measures
aimed at:

(1) reducing the costs of importing raw materials and losses of revenue due to unfair
competition in the form of tariff distortions and smuggling;
(2) improving the reliability in the supply of power and lowering electricity costs reducing
power costs;
(3) lowering logistics costs;
(4) encouraging investment policies conducive to raising the comparative advantage of
Philippine steel products;
(5) attaining ISO accreditation in relevant areas;
(6) enlarging the pool of trained workers for the industry;
(7) improving the design, collection and monitoring of industry data;
(8) improving the enforcement of regulations on product standards and customs
transactions;
(9) developing a mentoring program within individual firms to collectively sustain
comparative advantage;
(10) adapting lessons from the ASEAN experience;
(11) studying the feasibility of integrating upstream all the way to mining;
(12) improving production cost efficiencies;
(13) helping industry players identify new products to diversify into, especially products
with high export potential.

It is a given that steel companies are the main protagonists in sustaining their
competitive advantage and they will carry their own weaknesses and face their respective
threats. To a large extent their success in this task depends on the moves they make to
maximize their strengths to capture the opportunities in whatever operating environment they
currently face. The role of government is to complement the industry in these efforts.

The recommendations that are chosen for implementation (including the ones that may
arise from the areas for further study recommended by the industry players) must be adapted to
the operating environment of global competition and relatively freer trade that steel companies
are facing.

iv
Contents

ACKNOWLEDGEMENTS ................................................................................................................... i
EXECUTIVE SUMMARY................................................................................................................... ii

PERSPECTIVE ON THE ROADMAP .................................................................................................. 1

Box 1: Business implications of the differences between Long and Flat Steel Products ......... 5
MISSION, VISION AND TARGETS .................................................................................................... 8
STATE OF THE INDUSTRY ............................................................................................................. 9
1. Structure.......................................................................................................................... 9
a. Sectoral coverage including its subsectors .................................................................. 9
b. Industry associations and players ..............................................................................11
Box 2: Diverging business interests across steel industry segments Producers vs Users of
GI Sheet raw materials ..........................................................................................................15
c. Membership in local and international groups / associations ......................................15
2. Performance / Benefits of the Industry ............................................................................16
a. Macro-economic benefits to the economy ..................................................................16
b. Share to GDP, employment, and manufacturing output ............................................17
Box 3: The Steel Industry and the Construction Sector .........................................................18
c. Trade Performance (Exports and Imports) .................................................................19
d. Investments in the sector / subsectoral ......................................................................24
e. Industry costs ............................................................................................................25
Box 4: Industry Data from Financial Statements ....................................................................25
f. Level of technology....................................................................................................28
g. Linkages with other industries ...................................................................................28
h. Supply chain, value chain, and local value added .......................................................31
i. Prices, income ............................................................................................................31
3. Supply and Demand .......................................................................................................31
a. Factors affecting supply ............................................................................................31
b. Factors affecting demand .........................................................................................37
c. Leading players (countries and companies) ..............................................................43
d. Consumption of goods per capita (local and global) .................................................44
e. Global Outlook for Philippine Steel Exports ..............................................................49
SUPPORT TO INDUSTRY DEVELOPMENT .......................................................................................51
1. Specific Industry Programs .............................................................................................51
2. General Support .............................................................................................................53
THREATS AND OPPORTUNITIES ANALYSIS ....................................................................................54
1. Threats and Concerns ....................................................................................................54
a. Brain Drain ...............................................................................................................54
b. High Power Cost ......................................................................................................54
c. Product Standards ....................................................................................................54
d. Smuggling .................................................................................................................55
Box 5: Technical Smuggling is killing us softly .......................................................................55
e. Truck Weight Limit ....................................................................................................58
f. High Distribution Cost ................................................................................................58
g. Industry Data and Statistics ......................................................................................60
2. Opportunities ..................................................................................................................60
3. Elements of Industry Competitiveness ............................................................................61
RECOMMENDATIONS ...................................................................................................................62
REFERENCES .........................................................................................................................66
ANNEXES ................................................................................................................................68
OVERVIEW OF STEEL PRODUCTION TECHNOLOGY IN THE PHILIPPINES .......................................69
PRODUCTION LINKAGES, MULTIPLIERS, AND MULTIPLIER EFFECTS OF THE IRON AND STEEL
INDUSTRY ...............................................................................................................................80
ANALYSIS OF PHILIPPINE COMPARATIVE ADVANTAGE IN IRON AND STEEL PRODUCT EXPORTS
(HS72-73) .............................................................................................................................94
 Chapter 1

PERSPECTIVE ON THE ROADMAP

1. Introduction

The iron and steel industry is a critical component of Philippine inclusive economic
growth and sustainable development. The industry plays a pivotal role in long term economic
development because it provides key material inputs for the construction of roads, buildings,
houses and factories as well as the manufacturing of high growth exportable products such as
automobiles, ships and electronics. This well-established fact has led to the inclusion of the
steel industry as among the 13 priority sectors identified under the 2011 Investment Priorities
Plan (IPP) of the Board of Investments from which strategic roadmaps are essential to the
development of the comprehensive national industrial policy as mandated in the Philippine
Development Plan 2011-2016. This new industrial policy seeks to spell out opportunities,
coordinate and promote the growth of forward and backward linkages in priority areas and high-
potential growth sectors, and prepare other industries to attract investments and generate jobs.

2. Rationale

This industry roadmap represents the response of the Philippine Iron and Steel industry
Institute to the call of the national government for local industries to craft long-term industry
competitiveness roadmaps that was issued during the Strategic Industry Development Forum:
Partnerships for Inclusive Growth held in January 2012. The roadmap is a private-led initiative
that will identify specific industry-level reforms with measurable targets for implementation of
strategic interventions from all key stakeholders up to the year 2030. The Department of Trade
and Industry plans to incorporate the recommendations of these roadmaps into the IPP of 2013
which aims to create sustainable economic growth across different industries and provide the
environment to make the Philippines more competitive with the rest of the region.

According to the PDP 2011-2016, the Aquino administration aims to improve the
countrys standing from the bottom third up to the top third echelon of globally competitiveness
nations, to increase merchandise exports to $91.5 billion from the current $38.2B, and to
generate up to 6 million new jobs by 2016.

3. Prevailing conditions of the industry

The current problems facing the iron and steel industry have gradually evolved from the
last decade when Vicente (2005) noted that the primary obstacles of overcapacity, high cost of
raw materials and energy, availability of raw materials, macroeconomic instability and market
uncertainty are the very same ones cited in the 1970s and 1980s studies of the Metals Industry
Research and Development Center (Department of Science and Technology). Since then, the
steel industry has undergone extensive consolidation after the shutdown of the Global
Steelworks (formerly National Steel Corporation) in _____ following the still unresolved legal
dispute over real estate back taxes of NSC which caused supply disruptions sector-wide. Global
Steel was the dominant producer of cold rolled steel and the countrys sole producer of hot
rolled coils and plates. Treasure Steel Corporation assumed the operation of Global Steels
billet shop and became the dominant manufacturer of billets for resale to end-users primarily the
rebar manufacturers in 2012.. In addition, the real estate surplus from the Asian Financial Crisis

Page 1 of 110
and the recurring fiscal crisis limited private and public construction. Consequently, sector
output and employment fell by about 10 percent1 as local production of hot-rolled coil/sheet,
cold-rolled coil/sheet, tinplates, and wire rods were completely displaced by cheap imports
particularly from China.

The business conditions for steel firms since 2005 have considerably changed. The
public image concerning the countrys macroeconomic instability and market uncertainty has
significantly improved as evidenced by the recent upgrade in credit ratings and rise in global
competitiveness rankings. While surplus capacity does exist counting the rated capacity of
mothballed plants that can still be re-opened, the reality is that a significant portion of the
capacities under consideration maybe considered obsolete and/or not operating (even
inoperable). The cost of semi-finished steel like hot rolled coils, hot rolled plates, cold rolled
coils is no longer high with the gradual phase out of MFN tariffs and the ready availability of
cheap imports (although imported scrap is still subject to 3% MFN tariffs.) The country remains
a net-exporter of scrap, indicating the relatively low price of domestic scrap for production
inputs. In fact, the low-input price scenario has produced the opposite but negative effect of
local steel plants forced to rely on steel imports.

The competitive strategy open to steel firms to survive, if not prosper, is to either
become buy-and-sell traders or re-establish the supply linkages across the steel production
process from iron / scrap to semi-finished goods and to finished steel products. The significant
increase in local production of billets (+65%) and bars (+49%) from 2007 to 2011 sets the stage
in anticipation of a gradual recovery in the real estate sector and the implementation of public-
private partnership projects to renew infrastructure spending. The proposed plan is to expand
capacity not just for long products which primarily support construction -- which constitutes
about 80% of steel demand but also to develop capacity for flat products which offers higher
value-added inputs to downstream sectors (e.g. auto and shipbuilding). The challenge facing
the steel industry during this rebuilding and repositioning phase is compounded with increasing
competition from cheap imports particularly from China, and from technical and outright
smuggling especially on light sections, GI/PPGI sheets, CRC, HRC & pipes.

Apparent steel consumption in the Philippines continues to lag behind the other
comparable countries in the ASEAN region with similar income levels. 2 The country ranks at the
bottom of ASEAN 5 (excluding Singapore) as the 5.16 million metric tons consumed in 2011 is
62% of the next closest rival Malaysia and only 37% of the top country Thailand (See Figure
1.1).

1
According to the latest survey of establishments conducted by the National Statistics Office (NSO).
2
Apparent Steel Consumption is the sum of production and imports less exports.
Page 2 of 110
 The underdeveloped state of the Philippine economy is evident based on the per capita
apparent consumption of steel which only exceeded the 50 kg per capita milestone in 2011.
From 39 kg in 2000 to nearly 54 kg in 2011, the 36% rise is well below the pace set by the other
ASEAN countries led by Vietnam (+212%), Thailand (+107%) and Indonesia (+60%) (See
Figure 1.2).

The high potential of future steel demand in the country is made more apparent with its
current low steel intensity which measures the amount of steel used per unit of Gross Domestic
Product. It is unfortunate that steel intensity in the Philippines has followed the downward trend
Page 3 of 110
in the region since 2000. The recent consolidation of the sector led to the 39% decline in steel
intensity which is worse than the average 29% decrease experienced within the region in the
last 10 years (See Figure 1.3).

An initial scan from key informant interviews provides additional constraints to doing
business in the steel industry. In addition to the high cost of electricity which is reportedly the
second highest in Asia behind Japan, the industry is faced with impending disruptions in the
supply of electricity until new power sources are found to address the power shortage now
plaguing Mindanao, which if left unsolved, could be felt nationwide.

On logistics, domestic distribution costs consisting of inland, sea freight and port charges
are more expensive than direct shipments from certain foreign ports (e.g. Japan, Taiwan &
China to Cebu, Davao and Cagayan De Oro). Likewise, there are concerns on the road limit
policy of the government to enforce the gross vehicle weight limit for the trucks which poses
economic consequences detrimental to stakeholders (i.e. truck owners and the consumers).

On tariffs, there is still the distortion in tariff rates wherein some raw materials are
subjected to duty, whereas the finished product is not. The distortion stems out of the
differences in the schedule of tariff reduction in the MFN rate and the Free Trade Agreement
rates. In the case of steel billets (the raw material for steel angle bars), the MFN rate is at 3%
while the ASEAN, China and Korea are zero-rated. The finished product produced from billets
(including steel angle) from China, ASEAN and Korea are also zero-rated. The finished product
from the rest of the world has an MFN rate of 7%.

The tariff distortion occurs when raw materials are imported from countries apart from
China, Korea and ASEAN such as Russia, Ukraine, CIS which entails an MFN rate of 3% for
billets; and the imported competitive finished product like bars come from ASEAN, China and
Korea with zero duty. The resulting distortion leads to a negative 3% differential.

The same is true for scrap to billets. Scrap has an MFN rate of 3%. When imported from
USA or Europe, the tariff duty is 3%. When billets, the final product of scrap originate from
Page 4 of 110
Korea, China or ASEAN, the duty rate is zero. The distortion is also a negative 3%. Such
distortions further weaken the competitive position of Philippine manufacturers. There is also the
absence of non tariff barriers on the importation of certain finished steel products that are locally
produced in sufficient quantities.

On smuggling, the under-declaration and mis-declaration of import entries remains

prevalent. Recently, the PISI urged the Bureau of Customs to investigate 15 companies for
supposed gross undervaluation of steel imports. The firms collectively imported finished steel
products at an average declared value of only $317 per MT when the price of scrap metal was
$400 to $420 /MT, while that of hot rolled coils and billet was above $600/MT in March 2012.

On product standards, the capability of the government (i.e. Bureau of Product

Standards in the Dept. of Trade and Industry) to monitor product standards through testing and
inspection is rather limited. In addition, approved product standards for GI sheets have been
stopped for enforcement by some producers thru court orders.

On monitoring and evaluating the performance of the industry, there is the absence of a
centralized agency to gather data. As such, there exists the problem of conflicting data from the
concerned government agencies (e.g. Bangko Sentral ng Pilipinas, Bureau of Customs, Bureau
of Import Services, National Statistics Office, National Economic and Development Authority).

Box 1: Business implications of the differences between Long and Flat Steel Products

The situational dynamics between the Philippine Iron and Steel industries is best
understood when it is viewed as consisting of two virtually distinct industry segments who share
a common raw material: steel scrap and iron ore which is transformed in stage 1 of steel
production into either pig iron or sponge iron. In stage 2, pig or sponge iron mixed with steel
scrap is converted into molten steel which is cast into three types of semi-finished products:
blooms, billets and slabs. Only billets are produced locally which utilize steel scrap as raw
material using electric arc and induction furnace. Thus, the recommendations presented at the
end of this report recognize that the need to address the differences in technology, markets and
economics between the long and flat steel industry segments.

In stage 3, long steel products, such as reinforcing bars and sections, are produced from
billets while flat steel products, such as such as hot rolled coils/sheets/plates, cold rolled
coils/sheets, galvanized sheets and tin plates, are made from imported slabs. One major
difference is that the production of flat steel products entails more refined processes using
higher quality ore in order to comply with for mechanical and physical properties. Consequently,
stage 3 steel plants that produce flat steel products add higher value to slabs, and flat steel
products have margins of 7-8%, greater than the 1-3% of long products. The lower value per
weight ratio of long products means that stage 3 steel plants that produce such products have
the tendency to be located closer to the market to save on transport and handling costs. In
contrast, the higher value to weight ratio of flat steel products indicates that producers of such
products are in a better position to export their products.

Therefore, the nature of the two major steel product segments has significant
implications on the threats and opportunities they face as well as on the strategic outlook more
extensively discussed in the threats and opportunities section. The short story version is that flat
steel producers of the industry can build on their expertise by attracting investments to produce
Page 5 of 110
plates for the emerging shipbuilding industry resurrected through a joint venture with the Korean
shipbuilder, Hanjin. Should they succeed in forming part of regional production chain for auto
parts and appliances, they can further raise investments for local slab production and production
of specialized flat products for these downstream users. This is the possible growth trajectory
for the flat segment given that 80-90% of local production goes the construction industry which
is expected to continue to boom.

The growth trajectory for the long steel products segment remains closely linked to
construction, which accounts for 90% of its production. Raising the industrial capacity of the
segment for higher billet production is key to satisfying the future requirements for finished steel
products in houses and office buildings that will be constructed to meet the demands of a
projected rapidly growing economy for the next three decades.

The higher technological requirements in the manufacture of flat steel products entail
different cost implications. An investment in a stage 3 plant for long products will cost about $50
million and will need a minimum production volume of half a million metric tons a year to keep it
viable. A stage 3 plant for flat products will require $300 million investment with at least 1 million
metric tons capacity to keep it viable. Existing steel technology in the country allows the use of
scrap metal and billets in the production of finished long steel products. In contrast, flat product
producers can only utilize slabs made from ore, whether sourced locally or from abroad,
because more specialized products for cars and ships require higher specifications which
cannot be met if the slabs are made from scrap metal.

The previous discussion must have made it clear by this point that the iron and steel
industry actually consists of two distinct product segments--the flat and long steel products.
Each has its own set of product characteristics, market drivers, operating environments and
investment opportunities which would require two sets of strategies and timelines. The project
team has crafted a set of recommendations which would apply to the industry as a whole and
could serve as the starting point of a dialogue between the government and industry players to
implement measures to improve the business-enabling environment commonly faced by present
and potential investors (i.e. infrastructure, smuggling, etc.)3 After the government announces its
strategies and timelines necessary to raise the global competitiveness of the industry, the
industry players will come together to formulate their corresponding strategies and timelines.

4. Framework

The framework for this roadmap is based on the proposed outline set by the BOI as the
standard guideline in the crafting of the sectoral competitiveness roadmaps. In summary, the
outline consists of the following elements:

I. Perspective on the Roadmap

II. Vision, Goals and Targets
III. State of the Industry
IV. Support to Industry Development
V. Opportunities-Threats Analysis
VI. Recommendations

To measure the success of the Roadmap in future years, the Roadmap includes:

3
For the specific recommendations see chapter 6 starting on p.71.
Page 6 of 110
 a) Implementation actions within the short-tem (by 2016), medium-term (by 2022) and long-
term (by 2030) for moving from current steel sector arrangements to arrangements that
will help achieve the Governments priorities

b) A framework of performance indicators to measure outcomes.

Together these components of the Roadmap will help to evaluate the progress made in
moving towards industrys strategic vision, and whether implementation is falling behind the
governments aspirations. The framework will help to highlight areas of slow progress that need
to be addressed throughout implementation of the Roadmap, and allow remedies to be
implemented to maintain progress on other priorities.

Page 7 of 110
 Chapter 2

MISSION, VISION AND TARGETS

1. Mission

The Philippine Iron and Steel Industry seeks to contribute to the country's sustainable
development by manufacturing world-class products for industry and society.

2. Vision

By 2030, the Philippine Iron and Steel Industry sees itself as a majority producer of
quality steel products for domestic users.
We reckon that this vision is achieved when the industry is able to supply 70% of the tonnage of
required apparent steel consumption for sustainable economic development in 2030.

Based on economic research, the current apparent steel consumption (ASC) in long and
flat steel products are only 57% and 35% of international levels with similar income levels
respectively. To attain the 70% targets, the ASC of long and flat steel products will need to rise
to 9.8 million metric tons and 10.1 million metric tons respectively by 2030.4

Table 2.1 - Apparent Steel Consumption Targets

GDP per LONG Steel Products FLAT Steel Products

Capita ($) mil MT Model % mil MT Model %
2008a 1,918 2.3 4.5 52% 1.8 4.8 37%
2009a 1,827 2.6 4.3 60% 1.5 4.7 32%
2010a 2,123 2.8 5.1 54% 1.5 5.5 28%
2011a 2,223 3.1 5.5 57% 2.0 5.9 35%
2016 2,833 4.5 7.8 58% 3.5 8.3 42%
2022 3,697 6.4 10.4 62% 5.9 10.8 54%
2030 4,808 9.8 14.0 70% 10.1 14.4 70%
Legend: (a)ctual
Sources: IMF projections (April 2012), UA&P estimates

4
Targets are based on the ASC-Steel Intensity model described in pp. 41-45 which also includes the arbitrary year-on-year targets
from 2012 to 2030.
Page 8 of 110
 Chapter 3

STATE OF THE INDUSTRY

1. Structure

a. Sectoral coverage including its subsectors

According to Republic Act No. 7103 or An Act to Strengthen the Iron and Steel and
Promote Philippine Industrialization and for Other Purpose dated 8 August 1991, the iron and
steel industry refers to the preparation, smelting, crushing, soaking, blooming, slabbing,
melting, firing, rolling, casting, shaping, plating, galvanizing and other processes involved in
transforming raw materials (i.e., iron ore, coke, limestone, fluorspar, dolomite, and silica) into
semi-finished products (i.e., ingots, slabs, blooms and billets) and/or semi-finished products into
finished products (products in their final physical state like hot-rolled coils and, plates and
sheets. This all-encompassing definition shows complexity of and the wide range of items
produced by the iron and steel industry, both semi-finished and finished products.

The finished products manufactured by the iron and steel industry can be classified into
long and flat products. Long products, which are primarily used by the domestic construction
sector, consist of sections, bars, and wire rods. On the other hand, flat products include plates,
hot-rolled sheets and strips, cold-rolled sheets and strips, tin plates, other metallic-coated
sheets, and pipes and tubes. The main users of the flat products are the industries involved in
construction, automobiles, packaging, electronic precision, household appliance and
shipbuilding and repair. Other allied downstream industries include foundries, metal fabrication,
tool and die, machineries and equipment for agriculture, construction, food manufacturing and
mining. Flat products have generally higher value-added and more stringent product quality
standards. (See Figure 3.1).

Page 9 of 110
 Figure 3.1 - Philippine Steel Product Linkages (2012)

L Scr ap i r on, Constr uction

O DRI, HBI, pig-
N ir on Bar s Manufactur ing
G
Machiner ies
Electr ic
P Fur nace Billets Rolling
Shapes / Constr uction Other Allied
R Steelmak ing
Sections Industr ies:
O Fabr ication
D Impor ted Foundr ies
U Billets Nails
C Impor ted
Wir e Rods Wir es Metal
T
S Fabr ication
Fastener s

F Shipbuilding Tool and Die

HR Plates
L Impor ted
A Hot Rolling Pipes Const r uction -
Slabs
T Impor ted
HR Coils r etail
Hot Rolled Pipes / Tubes
P
R Constr uction Machiner ies &
O Equipment
Impor ted Ser vice center s
D Cold CRC/ TMBP
U Rolling Galvanizing GI / PPGI
Sheets Constr uction Agr icult ur e
C
T Local CR
Fabr ication Appliance
S
Coi ls/ TMBP* Const r uction
Impor ted Tinplates
HRC Tinning Ser vice center s

With the shutdown of Global Steel, all raw material Impor ted Container / Packaging
inputs for galvanizing, fabrication and tinning are being
imported. Facilities for local production still exist. Tinplate
Ser vice center s
.

Page 10 of 110
The list of the steel products locally manufactured and imported is shown in Table 3.1.

Table 3.1 - Steel Product Lines in the Philippines as of 2012

Category Local Imported

Semi-Finished Billets Billets
Products Steel Slabs
Finished Products
Long Products Reinforcing steel bars - all Reinforcing steel bars - mostly 6,
sizes 7, 8mm
Angle bars - 80mm and below Angle bars - all sizes
Medium and Heavy sections - H
beam, I beam, channels
Light Sections, Channels and
Shapes
Wire rods
Steel wires Steel wires
Steel purlins Steel purlins
Alloy bars - including stainless
steel
Flat Products Hot dipped galvanized sheets Hot dipped galvanized sheets
Zn-Al coated sheets Zn-Al coated sheets
Welded black iron pipes and Welded black iron pipes and tubes
tubes
Welded galvanized pipes and Welded galvanized pipes and
tubes tubes
Pre-painted galvanized / Zn-Al Pre-painted galvanized / Zn-Al
coated coils/sheets coated coils/sheets
Pre-painted Galvanized Iron
Sheet piles
Hot rolled coils / sheets
Cold rolled coils / sheets
Stainless steel sheets
Source: PISI

b. Industry associations and players

The over-all industry is traditionally represented by the Philippine Iron and Steel Institute
(PISI) which currently has a membership of 47 companies including 3 related associations as
members. PISI members are categorized into flat products, long products, steel fabrication /
forming / finishing, and traders and suppliers. The breakdown of membership by product group
and subsector and related associations as well as major non-member players is shown in Table
3.2.

Aside from these companies, there are also five steel service centers in the country.
They are companies that that process steel into products that are used by manufacturing firms.
They also recycle steel and store steel products needed by many small and medium enterprises
as required.5 For instance, there is POSCO-Philippine Manila Processing Center, Inc, a Korean
5
Taken from http://www.thomasnet.com/about/steel-service-centers-80132103.html

Page 11 of 110
subsidiary of Pohang Iron and Steel Co, Ltd, which is located in First Philippine Industrial Park,
Sto. Tomas/Tanauan, Batangas and makes steel products for electronic components,
automotive parts and home appliances.6 There is also MM Steel Service Center Corporation, a
subsidiary of Marubeni-Itochu Steel Inc, which is located in the People's Technology Complex,
Carmona, Cavite and produces automotive parts.7

6
Taken from http://siva-
ph.jobstreet.com/SiVA11/Company/ViewProfile.aspx?token=oABbFTSunA1Na7MXawHDn8hsLhWyhobDVHGnFldswik=&rnd=7821
6954&max=1&alljob=1#.UMnbzy_LYZ4
7
Taken from http://www.philippinecompanies.com/companyprofile/35122/mm-steel-service-center-corp- and
http://www.benichu.com/english/network/kanren_overseas.html

Page 12 of 110
 Table 3.2 - Major Industry Players and Associations

Product
Subsector - Related Associations
Group / Major Players
Products
Stage
Long Steel 1. Steel Asia /a 5. Elegant Steel 9. SKK Steel / b a/ Phil Iron and Steel
Product Making - 2. Amalgamated Metals 6. Ferromet Resources 10. Stronghold Steel /a Institute
Billets 3. Cathay Pacific Steel /a 11. Treasure Steel /a
4. CKU Steel /d 7. Midland Steel b/ Phil Steelmakers
8. Melters Steel Association
Rolling Mills 1. 21st Century Steel /e 7. Filipino Metals 13. Pag-asa Steelworks
- Bars 2. Binan Steel /d 8. Grand Asia / c /a c c/ Phil Steel Rolling
3. Builder Steel / c 9. Legacy Steel /a e 14. Metro Dragon Mills Association
4. Capitol Steel /a d 10. LLN Products /a 15. Somico Steel (PSRMA) /a
5. Cebu Steel / a d * 11. Cathay Pacific Steel 16. Steel Asia /a c
17. Universal Steel d/ Association of Phil
6. Continental Steel /c 12. Maxima Steel /a d e
Smelting Steel Mills (APSMI)
18. Worldwide Steel
e/ Steel Angles,
Shapes & Section
Light 1. 21st Century Steel /e 4. Legacy Steel / a e 6. Maxima Steel / a e Manufacturers
Section 2. Cathay Metal 5. Lunar Steel / a d e 7. Unicorn Metal Association of
Channel 3. Dragon Asia Philippines
(SASSMAPI) /a

*Not operating
Wire 1. Sterling Steel /a 3. Fidelity Steel / c Wire Rope
Product 2. Philippine Nails and Manufacturers
Wire Corp. / a Association of the Phil
(WRMAP)
Flat Hot / Cold 1. Global Steel /* 2. Steel Corp /* 3. Sacramento /*
Product Rolling
Galvanizing 1. AC Steel 5. Group Steel 9. Steel Corp /* Phil Galvanizers and
and Coil 2. Chuayuco Steel 6. Philsteel /* 10.Tower Steel Coaters Association
Coating 3. Excel Coil Coating 7. Puyat Steel /a 11.Union Galvasteel / a Filipino Galvanizers
4. Galvaphil 8. Sonic Steel Institute (FGI)

Page 13 of 110
 Product
Subsector - Related Associations
Group / Major Players
Products
Stage

Pipe and 1. Supreme Steel Pipe /a 3. Goodyear Steel Pipe Pipes & Tubes
Tube 2. Super Industrial /a 4. Mayer Steel Manufacturers Assoc.

Steel Fabrication, 1. Accutech Steel & 4. Fasteners 7. Philmetal Products Philippine

Forming and Finishing Service Center /a Incorporated /a 8. Steel Centre Phil /a Association of Steel
2. Colorsteel Systems /a 5. Hurleson Steel /a 9. Steelpro Phils. /a Formers, Inc. (PASI)
3. DN Steel Marketing /a 6. Jacinto Color Steel Tin Can
/a Manufacturers
Association (TCMAPI)
Traders, suppliers and 20 PISI members Phil Iron and Steel
Others Traders Association /a
(22 members)
Scrap Collectors
and Recyclers
Association of the Phil
(SCRAP)
Source: PISI

Page 14 of 110
 The PISI has three basic functions in promoting the development of the local iron and
steel industry. The first function of the PISI is to represent the iron and steel sector in policy
discussions with the legislature and national government agencies. This will ensure that the
views and concerns of the local industry will be properly heard in the relevant consultations and
fora. Its second function is to provide technical training to the employees of industry players.
The training programs cover areas in steel manufacturing operations, maintenance, safety and
environmental management. The last function of the industry association is to conduct capacity
building activities for the industry players.

The segmented nature of the steelmaking process is reflected in the existence of the
numerous associations at the sub-sector level distinct from PISI - as seen in Table 3.20. As
there is no integrated steel plant(s) in the country, no single firm can claim to represent the best
interests of all industry segments. The business interests of sub-sectors that are upstream
and/or-downstream from each other are not always coincidental. Promoting pro-competition
policies that lead to lower prices is always welcome but more so for the input-using
downstream subsector than the upstream sector under review. Pushing for higher quality
standards and hence higher prices in an upstream steel segment may not be considered in the
best interest of the downstream sector which will need to pay higher costs for the inputs.

Box 2: Diverging business interests across steel industry segments Producers vs

Users of GI Sheet raw materials

A case in point is the recent issue where local galvanizers under the Filipino Galvanizers
Institute (FGI) opposed the imposition of standards for import clearances of imported raw
materials for galvanizing roofing products, contrary to the stand of local producers of cold rolled
coil (CRC) which produced such products. FGI states that imposing the imports of the raw
materials under a mandatory Philippine National Standards (PNS) and import commodity
clearance (ICC) certification would only cause unnecessary burden to the manufacturers of GI
sheets. Subsequently, the government decided in April 2010 not to implement the regulation in
deference to the various representations of the motorcycle assemblers and steel galvanizers (as
well as the Federation of Philippine Industries) for deferment because such standards are
imposed on finished and not intermediate or raw material goods, and that there are no
facilities to conduct the test and accredited agencies to undertake the test in any case.

c. Membership in local and international groups / associations

The PISI, which is the umbrella organization of local associations in iron and steel, is
currently a member of two international organizations the Southeast Asian Iron and Steel
Institute (SEAISI) and the ASEAN Iron and Steel Industry Council (AISC). PISI is also a member
of the Philippine Chamber of Commerce and Industry.

SEAISI was incorporated in 1971 under the auspices of the United Nations Economics
Commission for Asia and the Far East. SEAISI is a technical institute with its main objective is to
promote the iron and steel industry in the Southeast Asian region by facilitating technology
transfer from around the world, particularly Australia, Japan, Republic of Korea, and Taiwan.8
Member countries of SEAISI consist of Indonesia, Malaysia, Philippines, Singapore, Thailand
and Vietnam as regular members, and the countries of Australia, South Korea, and Taiwan as
supporting members. Japan is represented by leading steel companies, Nippon Steel and JFE.

8
Southeast Asian Iron and Steel Institute website (www.seaisi.org)

Page 15 of 110
The countries are represented by the national committees which in the case of the Philippines is
PISI. The firms which comprise these national committees automatically become members of
SEAISI. SEAISI is likewise an affiliated member of the World Steel Association (WSA), the
largest international iron and steel association. No local iron and steel firm can currently meet
the regular membership requirement of the WSA, which require an annual steel production of at
least two million short tons.

On the other hand, the AISIF was established in 1977 as a regional industry club under
the aegis of the ASEAN Chamber of Commerce and Industry. The primary purpose of the AISIF
is to promote the well being of the iron and steel industry in the ASEAN region, focusing on
trade, investment and business promotion. 9 The members of AISC are six ASEAN countries:
Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam.

2. Performance / Benefits of the Industry

a. Macro-economic benefits to the economy

One measure of the significance of the iron and steel industry to the whole economy is
the multiplier effects of raising the output and investment in the sector. Based on the current
economic structure surrounding the steel industry, a new investment of P100 million leads to a
P270 million increase in total output, a P24 million rise in household incomes, and 117 new
jobs. The figures get higher as linkages with local suppliers and buyers are further developed
and locally produced inputs replace imported inputs until the effects approximate the global
multipliers (See Table 3.3)
Table 3.3 - Input-output Multipliers
Effects of P1 increase in investment
Multipliers
Global* Domestic
Total Output 3.50x 2.70x
Input sectors 1.60x 1.08x
Iron & Steel Sector 1.00x 1.00x
Output sectors 0.90x 0.62x

Total Household Income 0.32x 0.24x

Additional Employment per P100
155x 117x
million investment
* Assumes that all of the related / affected sectors are domestic (i.e. all
inputs are sourced locally).
Source: UA&P estimates using updated input-output table for 2008

The iron and steel industry remains a major driver in raising national output. The
domestic output multiplier of the industry is higher than construction, private health services,
transportation, financial intermediation, wholesale and retail trade, other personal services, real
estate, nickel mining, private education and mining / quarrying. It is overtaken by only five other
sectors: manufacturing, fishing, agriculture and forestry, electricity/gas/water, and hotel /
restaurants. (See Table 3.4 as seen in table 3 of Annex B.)

9
ASEAN Iron and Steel Industry Federation website (www.misif.org.my)

Page 16 of 110
 Table 3.4 - Ranking of Domestic Total Output Multipliers
1. Manufacturing 3.4
2. Fishing 3.3
3. Agriculture and Forestry 3.2
4. Electricity, Gas, and Water 3.1
5. Hotels and Restaurants 2.75
6. Iron and Steel 2.7
7. Construction 2.63
8. Private Health Services 2.24
9. Transportation, Storage, and Communication 2.2
10. Financial Intermediation 1.95
11. Wholesale and Retail Trade 1.87
12. Other Community, Social, and Personal Services 1.81
13. Real Estate 1.66
14. Nickel Mining 1.26
15. Private Education Services 1.2
16. Mining and Quarrying 1.14
Note: The domestic total output multiplier is derived from the semi-closed domestic Leontief
inverse matrix, which was based on a non-survey estimate of the 2008 Philippine input-output
table. The table has 16 industries or sectors and 1 household sector. The household sector was
excluded in the ranking. The domestic total output multiplier represents the additional domestic
output in the economy generated by a change in final demand. If the assumed change in
investment spending is multiplied by the domestic total output multiplier, one gets the total
multiplier effect on domestic production in economy. The output multipliers were derived using
the column elements of the semi-closed domestic Leontief inverse matrix

b. Share to GDP, employment, and manufacturing output

Based on the sectoral income accounts of the National Statistical Coordination Board
(NSCB), the local iron and steel sector is comprised of the basic metal industries and fabricated
metal products. Except for the sharp drop in the first semester of 2012, the share of gross value
added (GVA) in the local iron and steel sector to GDP, GVA in industry, and GVA in
manufacturing has been fairly stable (See Table 3.5). Share of the iron and steel industry
hovered at 0.7% to 0.8% range during the 2003-2011 period before falling to 0.5% in the first
half of 2012. The significant decline in the share to GDP is largely attributed to the 20.6%
contraction in output of the iron and steel industry coupled with the 6.1% expansion in the
domestic economy (See Table 3.6).
Table 3.5 - GVA in Iron and Steel Industry as a Percent of GDP
Year % of GDP % of Industry % of Manufacturing
2003 0.7 2.0 2.8
2004 0.7 2.0 2.8
2005 0.6 1.8 2.5
2006 0.7 2.3 3.1
2007 0.7 2.2 3.1
2008 0.8 2.5 3.5
2009 0.7 2.1 3.1
2010 0.7 2.1 3.1
2011 0.7 2.1 3.0
1H 2012 0.5 1.6 2.3
Source: National Statistical Coordination Board (NSCB)

Page 17 of 110
 The correlation between the GVA in the iron and steel sector and GDP over the last
decade is not particularly strong.10 The low correlation can be gleaned from the relative
performance of the local iron and steel industry to GDP. One noticeable trend is the greater
tendency for the output of the sector to experience a sharp fall, if not contraction, when
economic growth declines. This trend is consistent with the nature and outlook of construction
projects which drive the demand for steel products and is highly sensitive to macro-economic
sentiment in the long-run. The correlation of the iron and steel sector with industry and
manufacturing is likewise low, but their correlation coefficients are significantly higher than that
with GDP.

Table 3.6 GVA of Iron and Steel, GDP, Industry and Manufacturing (2003-2011)
(growth rate,%)

Year Iron and Steel GDP Industry Manufacturing

2003 - 2004 3.7 6.4 5.2 5.1
2004 2005 -6.8 5.0 3.8 5.6
2005 2006 31.7 5.3 4.5 4.6
2006 2007 4.4 7.1 6.8 3.3
2007 2008 0.1 3.7 4.9 4.3
2008 - 2009 -15.5 1.1 -1.9 -4.8
2009 - 2010 12.1 7.6 11.6 11.2
2010 - 2011 1.9 3.9 2.3 4.7
1Q 11 - 1Q 12 -20.6 6.1 4.9 5.0
Source: NSCB

The local iron and steel sector contributes less than 2% of total employment in the
manufacturing industry (See Table 3.7). The lack of upstream steel manufacturing facilities after
the closure of Global Steel has led to the downscaling if not outright closure of many steel
plants. Considering this development, the industry has reduced its manpower complement by
21% from 19,700 in 2003 to only to 15,648 in 2009.

Table 3.7 - Employment in the Iron and Steel Industry

Year Iron and Steel Manufacturing

2003 19,700 986,921
2005 17,979 1,025,814
2009 15,648 953,799
Source: Annual Survey of Philippine Business and Industry National Statistics Office (NSO)

Box 3: The Steel Industry and the Construction Sector

The performance of the Philippine steel industry is closely linked to the growth of the
construction sector. Steel products used in the construction of buildings, houses, and
infrastructure facilities include rebars, angles, channels, beams, sheet piles, wires and wire
rods, GI, Zn-Al and pre-painted sheets, and pipes and tubes.

10
A longer time series is preferred in the computation of the correlation coefficient. The NSCB is in the process of rebasing the
national income accounts from 1985 to 2000. The rebased series currently available from the NSCB with a 22-subsector breakdown
for manufacturing is from 2008 to first quarter of 2012. The 22-subsector breakdown includes basic metal industries and fabricated
metal products.

Page 18 of 110
 Simple regression estimates using national data from 1996 to 2011 show that for every
P1 million increase in the Gross Value Added of Construction (at current prices) the apparent
steel consumption for long steel products and overall steel products in general rise by 1.35
metric tons and 1.46 metric tons, respectively. Expressed in elasticity form, this translates to
+0.3% and +0.2% increase in the consumption of long and all steel products respectively for
every one percent increase in current GVA of Construction nationwide. The regression results
involving flat steel products were not statistically significant.

For every + P1 million in Current GVA of Construction

Product +MT T-stat Significance Acceptable
Both 1.46 2.99 ** Yes
Long 1.35 4.73 ** Yes
Flat 0.23 0.67 No

For every +1% in Current GVA Of Construction

Product +% in MT T-stat Significance Acceptable
Both 0.20 2.86 ** Yes
Long 0.30 3.77 ** Yes
Flat 0.10 0.85 No
Source: UA&P estimates using raw data from SEAISI and NSCB

c. Trade Performance (Exports and Imports)

Considering the local iron and steel industrys limited production, the country imports
about half of its requirements. Over the past two years, there has been a noticeable increase in
imports iron and steel products (See Table 3.8). In 2011, importations expanded by some 24%
to 3.92 million MT. The expansion in imports of iron and steel products was due in part, to the
shutdown status of Global Steel, the sole manufacturer of flat products, and to higher demand
by the construction sector as a result of the recovery of the real estate sector.

Table 3.8 - Imports of Iron and Steel Products (in metric tons)

Year Total Imports % change

2007 3,432,639 11.6
2008 3,018,172 -12.1
2009 2,830,103 -6.2
2010 3,170,891 12.0
2011 3,921,994 23.7
Source: Southeast Asia Iron and Steel Institute (SEAISI)

The ratio of long-to-flat product imports is about 30:70 (See Table 3.9). With a limited
capability to locally produce flat products, a large majority of the countrys consumption
requirements come for imports. Over the past five years, imports of finished steel products grew
by an average of 7.0% per annum. Importations of flat products outpaced long products, 7.4%
per annum to 5.9% per annum. Imports of galvanized iron (GI) sheets, pipes and tubes, and
plates posted the higher growth rates among flat products. GI sheets, pipes and tubes are

Page 19 of 110
primarily used by the construction sector, while steel plates are utilized by the shipbuilding and
repair sector.

China, Russia, South Korea and Japan are the countrys leading source of imports of
iron and steel products. Over the past five years, import volumes from Chinese, Russian, and
Japanese companies amounted to an average of 860,552 MT, 593,675 MT and 503,387 MT per
annum, respectively. The combined volumes from these three countries accounted for close to
60% of the countrys total imports of iron and steel products. Among the SEASI member
countries, the leading countries of origin of Philippine imports, aside from Japan, are Taiwan
(426,913 MT per year), and Republic of Korea (359,605 MT per year).

Page 20 of 110
.
Table 3.9 - Philippine Imports of Semi-Finished and Finished Steel Products, 2007-2011
(in metric tons)

Particulars 2007 2008 2009 2010 2011

Semi-Finished Products 1,345,344 1,103,267 1,182,076 1,169,998 1,120,011
Billets 1,026,265 853,128 1,117,790 1,169,998 1,120,011
Slabs 319,079 250,139 64,286 0 0
Finished Products 2,061,620 1,894,417 1,640,873 2,085,803 2,738,762
Long Products 721,852 585,159 475,958 646,715 765,300
Wire Rods 431,137 377,456 338,069 336,854 344,378
Bars 58,778 42,132 36,912 65,207 115,426
Shapes and Sections 191,435 133,078 59,217 190,130 179,510
Sheet Piles 12,528 8,949 10,434 29,946 20,816
Wires 23,998 20,255 26,339 18,516 39,997
Rails 2,046 1,041 2,464 2,174 3,394
Others (Alloy and Stainless Steels) 1,930 2,248 2,523 3,888 61,780
Flat Products 1,339,768 1,309,258 1,164,915 1,439,088 1,973,461
Plates 205,385 327,249 331,058 280,728 441,528
Hot Rolled Coils / Sheets 335,863 284,478 284,879 214,908 325,326
Cold Rolled Coils / Sheets 298,494 228,336 211,257 292,648 383,018
Cold Rolled Electrical Sheets 1,676 3,593 1,619 1,626 10,019
GI Sheets / Pre-Painted / Zn-AL 103,623 100,093 74,075 227,401 300,551
Tinplates / TFS 196,849 188,796 118,080 233,449 202,720
Pipes and Tubes 166,581 119,903 99,148 122,727 180,739
Others (Alloy and Stainless Steels) 31,297 56,810 44,799 65,601 129,561
Sources: BOC, DTI, PISI, SEAISI, and industry sources.

Page 21 of 110
 The export performance of the Philippine iron and steel industry has been very erratic
since 2004 (See Table 3.10). From a measly 92,339 MT in 2004, export volume increased by a
whopping 275% to 346,076 MT in 2006. The uptrend in exports was largely attributed to
attributed to Global Steels sales strategy of allocating more volumes for the export market.
Also, higher volumes of export sales were realized for galvanized sheets. However, the strong
export performance was short-lived as volumes dropped to 74,389 MT in 2009, when Global
Steel began experiencing cash flow problems. The estimated export volume of iron and steel
products in 2010 was 105,103 MT --- 70% lower than the industrys all-time high.

Table 3.10 - Exports of Iron and Steel Products11 (in metric tons)

Year Total Exports % change

2004 92,339
2005 162,324 75.8
2006 346,076 113.2
2007 219,949 -36.4
2008 150,516 -31.6
2009 74,389 -50.6
2010 105,103 41.3
Source: SEAISI

The countrys export volumes are lower compared with other SEASI member countries
(See Table 3.11). For instance, Philippine iron and steel exports in 2010 accounted for a paltry
0.1% of total exports of SEASI member countries. Japan remains as the leading exporter with
volumes accounting for close to half of the institutes total. Furthermore, the Philippines has a
limited product line compared with its neighboring countries. As previously mentioned, the
absence of an upstream sector constrains the ability of local firms to manufacture the full line of
iron and steel items, particularly flat products.

Table 3.11 - Exports of SEASI Member Countries, 2010 (in metric tons)

Country Total Exports % share

Australia 2,608,577 2.9
Indonesia 1,415,851 1.6
Japan 42,935,779 48.0
Republic of Korea 24,558,059 27.4
Malaysia 2,791,671 3.1
Philippines 105,103 0.1
Singapore 2,133,154 2.4
Taiwan 9,843,040 11.0
Thailand 1,849,230 2.1
Vietnam 1,282,723 1.4
TOTAL 89,523,187 100.0
Source: SEAISI

The countrys leading export of iron and steel products are carbon steels (both hot-rolled
and cold-rolled) and coated sheets and strips. Over the 2004-2010 period, carbon steels and
carbon sheets and strips posted annual averages of 111,206 MT and 42,463 MT, respectively.

Details of 2011 exports of iron and steel products are not available.
11

Page 22 of 110
The primary destinations of the locally produced iron and steel products are Vietnam, India, and
Indonesia. These three countries combined account for close to 50% of total export volumes
over the past seven years.

There are also indirect exporters of steel products in the country. These include firms
engaged in the production of computers, office equipment, and automatic teller machines for the
export market. The combined steel consumption of these firms can reach as high as 15,000
metric tons per month.

Historically, the Philippines has been a net importer of iron and steel products (See
Table 3.12). Net imports amounted to 3.04 million MT in 2010, an increase of 10.4% over the
previous year. With the exception of Japan and Taiwan, all SEASI member countries are net
importers of iron and steel products.

Table 3.12 - Trade Performance, Philippines: 2004-2010 (in metric tons)

Year Exports Imports Trade Balance

2004 92,339 2,866,458 -2,774,119
2005 162,324 2,721,205 -2,558,881
2006 346,076 3,076,805 -2,730,729
2007 219,949 3,432,639 -3,212,690
2008 150,516 3,018,172 -2,867,656
2009 74,389 2,830,103 -2,755,714
2010 105,103 3,147,891 -3,042,788
Source: SEAISI

The Philippines iron and steel industry likewise actively trades in scrap iron. Scrap
comes from recycled products, leftovers from consumption such as vehicles and building
supplies, and surplus materials. The local steel industry is comprised primarily of steel making
and rolling mills. Steel making, which is scrap-based, utilizes the electrical arc furnace process.
Hence, the local industry is a huge consumer of ferrous scrap.

In 2010, consumption of scrap iron amounted to 1.24 million MT, with local firms
supplying a large majority of demand. Imports of scrap iron summed up to 24,321 metric tons in
2010. Unlike finished steel products, the Philippines is a net exporter of scrap iron (See Table
3.13).

Table 3.13 - Exports and Imports of Scrap Iron (in metric tons)

Year Exports Imports Trade Balance

2004 861,828 20,977 840,851
2005 947,491 12,104 935,387
2006 1,274,379 22,762 1,251,617
2007 771,739 98,703 673,036
2008 767,759 63,028 704,731
2009 397,463 34,684 362,779
2010 550,997 24,321 526,676
Source: SEAISI

Page 23 of 110
d. Investments in the sector / subsectoral

There is limited information on investments in the Philippine iron and steel industry. The
investment data used in this report were based on the Annual Survey of Philippine Business
and Industry prepared by the National Statistics Office (NSO). Gross addition to fixed assets is
used as the proxy variable for investments.

The results of the NSO show that investments in the manufacture of basic iron and steel
have declined sharply to Php297 million in 2009 from Php1,565 million in 2003 (See Table
3.14). Investments were significantly lower in spite of the 34% growth in revenues over the
same period.

With the looming establishment of the ASEAN Free Trade Area (AFTA), a number of
local firms are unable to compete with low cost producers in other countries. Hence, some of
these firms have opted to close shop or to shift to more competitive product lines. The
breakdown of investments by subsector in 2009 is provided in Table 3.14.

Table 3.14: Investments in the Philippine Iron and Steel Industry

(in million pesos)

Particulars 2003 2005 2009

Manufacture of Basic Iron and Steel
Total Revenue12 52,338 75,667 70,190
Total Cost13 47,521 71,278 59,926
Value of Output14 53,505 77,787 69,021
Gross Addition to Fixed Assets15 1,565 1,372 297
Total Manufacturing
Total Revenue 2,244,079 2,949,134 3,357,437
Total Cost 1,835,479 2,434,069 2,457,885
Value of Output 2,263,936 2,912,185 3,293,680
Gross Addition to Fixed Assets 102,493 94,984 95,407
Source: Annual Survey of Philippine Business and Industry, NSO

Table 3.15: Gross Additions to Fixed Assets by Subsector, 2009

(in million pesos)

Subsector Investments
Operation of blast furnaces and steel making furnaces 63
Operation of rolling mills 147
Pipes and tubes manufacturing, iron or steel 5
Manufacture of pipe fittings of iron or steel 0
Manufacture of galvanized iron sheets, tinplates and other coated 71

12
Revenue includes cash received and receivables for goods and products and by-products sold and services rendered. Valuation
is at producer prices (ex-establishment) net of discounts, and allowances including duties and taxes but excluding subsidies.
13
Cost refers to all expenses incurred during the year whether paid or payables. Valuation is at purchasers price including taxes and
other charges, net of rebates, returns and allowances. Goods and services received by establishment from other establishments of
the same enterprise are valued as though purchased.
14
Value of output represents the sum of the value of products and by-products sold, receipt from industrial services done for others,
receipt from goods sold in the same condition as purchased less cost of goods sold, fixed assets produced on own account, and
change in inventories of finished products and work in progress.
15
Gross addition to fixed assets is equal to capital expenditures less sale of fixed assets including land.

Page 24 of 110
 Subsector Investments
metal products made in steel works of rolling mills
Steel works, not elsewhere classified 10
TOTAL 297
Source: Annual Survey of Philippine Business and Industry, NSO

e. Industry costs

Based on the NSOs 2009 Annual Survey of Business and Industry, total revenues of the
iron and steel industry summed up to Php70,190 million, lower than the Php75,667 million
posted in 2005 (See Table 3.16). Total operating cost was Php59,926 million in 2009
significantly lower than the Php71,278 million registered in 2005. Hence, estimated net
operating income improved to Php10,264 million in 2009 from Php4,289 million in 2005.

The NSO survey provides only two components of operating costs intermediate cost
and compensation cost. Intermediate cost consists of cost of materials, fuel and electricity
consumed, industrial service, and goods for resale. Based on the surveys conducted in 2005
and 2009, intermediate and compensation costs accounted for 88% and 4% of total operating
cost, respectively. According to industry sources, the largest components of intermediate cost
are raw materials and electricity and fuel consumed. Thus, financial performance of the iron and
steel industry is highly sensitive to price movements in raw materials, electricity, and fuel.

Box 4: Industry Data from Financial Statements

Industry data from NSO surveys is open to questions particularly as the size and number
of players in the steel industry greatly varies from the data gathered from PISI which is sourced
from industry insiders. (Table 3.2). In addition, general conclusions from industry-level data of
NSO are subject to sub-sector interpretations. Differences in the costs and pricing within the
steel product segments characterize the financial dynamics of the entire industry which cannot
be taken singularly. As a case in point, steel prices especially that of billets nose-dived in the
latter part of 2008 due to the European financial crisis. The rate of decline in the final products
price is much steeper than the decrease in raw material prices which is scrap. Hence net
operating income of billet producers significantly dropped in 2009 contrary to the conclusion
arrived at using NSO data. On the other hand, rebar manufacturers may have posted gains in
2009 as a result of the significant decline in billet prices which are the raw materials of steel
bars.

As an alternative to survey data from NSO, financial statements for 2010 of identified
steel firms were obtained by PISI. Combined net income after tax of the Philippine iron and
steel industry amounted to Php277.7 million in 2010 on the back of total revenues and total
costs of Php60,362.1 million and Php60,084.3 million, respectively The local industry posted a
net profit margin of only 0.46%. Financial performance of the industry was pulled down by the
Php840-million loss in the operations of steel making for billets, primarily because of the steep
drop in prices of billets. Among the six subsectors, the rolling mills for bars segment, which was
comprised of 21 companies, registered the largest combined revenues with Php44,599 million.
At a distant second was the galvanizing and coil coating subsector with P8,194 million. It was
also the most profitable subsector as it realized a net profit margin of 3.5% in 2010.

The industry data shows that the cost of goods and sales is about 78-93% of net sales
while operational expenses including selling and administrative costs comprise about 3-11%

Page 25 of 110
depending on the steel product segment. Minus the two top billet-producers whose net sales
comprises 78% of the segment, the margins after cost of sales and operations in billet
production are a healthy 6.8 percent and 3.3 percent respectively.
Financial Performance of Philippine Iron and Steel Industry, 2010
(in million pesos, unless stated otherwise)
Net
Net
Number of Total Capital Profit
Subsector Total Cost Income
Companies Revenues Expenditures Margin
After Tax
(%)
Steel Making
9 4,024.63 4,863.42 (838.80) 431.24 (20.84)
- Billets
Rolling Mills -
21 44,598.89 43,797.23 801.66 490.73 1.80
Bars
Section 6 2,411.28 2,395.21 16.07 3.68 0.67
Wire Product 3 417.89 411.61 6.28 3.19 1.50
Galvanizing
and Coil 10 8,194.47 7,906.65 287.82 118.42 3.51
Coating
Pipe and
2 714.90 710.21 4.69 8.38 0.66
Tube
TOTAL 51 60,362.05 60,084.33 277.72 1,055.65 0.46
Ratio to Net Sales (%)
Net Gross Operatin Net
Subsector Gross Operatin Income
Sales Profit g Income
Profit g Income Before
Tax
Steel Making -
Billets 4,023 (609) (795) (15.1) (19.8) (20.5)
Rolling Mills -
Bars 44,379 2,988 1,722 6.7 3.9 2.7

Section 2,403 127 65 5.3 2.7 1.0

Wire Product 414 20 11 4.9 2.8 2.3

Galvanizing and
Coil Coating 8,137 1,036 492 12.7 6.0 4.6

Pipe and Tube 714 157 80 22.0 11.2 1.0

TOTAL 60,070 3,720 1,574 6.2 2.6 1.3

Source: Various audited financial statements
Note: In order to avoid double counting, multi-product firms are included in only one subsector.
Despite its poor financial performance in 2010, the steel making for billets subsector still
managed to incur some Php430 million in capital expenditures. Only the rolling mills for bars
segment registered higher capital expenditures in 2010 at Php490 million. These two
subsectors accounted for more than 85% of the total capital expenditures of the local iron and
steel industry.

Page 26 of 110
 Table 3.16: Revenue and Cost of the Philippine Iron and Steel Industry, 2009 (in thousand pesos)

Number of Total Intermediate

Industry Total Revenue Total Cost
Establishments Compensation Cost
Operation of steel making
furnaces 94 27,460,409 22,274,368 935,247 18,640,159
Operation of rolling mills 94 23,764,767 22,397,681 897,529 20,878,295
Pipes and tubes manufacturing,
iron or steel 28 3,528,060 3,087,235 322,789 2,682,133
Manufacture of pipe fittings of
iron or steel 5 984,675 884,722 22,093 803,089

Manufacture of galvanized steel

sheets, tinplates and other
coated metal products made in
steel works or rolling mills 40 11,554,810 9,200,308 530,943 8,214,449
Steel works, not elsewhere
classified 35 2,897,246 2,082,003 170,109 2,076,776
TOTAL 70,189,967 59,926,317 2,878,710 53,294,901
Source: NSO
.

Page 27 of 110
f. Level of technology

According to industry sources, the level of production technology of Philippine steel

producers vary from state-of-the-art to over two decades old. Most new investments in process
technologies are driven by short-term profit-seeking brought about by a lack of long-term vision
and consistent government policies.

Steel production firms can be classified into two, depending on which production stages
the firm undertakes. Firms are called integrated steelworks if their production set-up start from
iron ore or scrap to produce steel products like bars, wire rods, hot rolled coils/sheets/plates,
etc. Firms with production set-up that starts with semi finished steel like billet or slab or produce
only semi-finished steel are non-integrated steelworks like independent rolling mills and billet
making plants. Scrap-based integrated mills using Electric Arc Furnace are normally called
Mini-mills to distinguish it from ore-based integrated mills using the Blast furnace route.

The last mini-mills in the country were established in the 1996-1998, and no new mills
for the Stage 2 production have been opened since then. Most of the new steel mills (actually,
using second hand equipment from China) are rolling mills for the long products sections and
rebars.

In 2011, Treasure Steelworks installed its first (of two planned) mini-blast furnace with a
pig-iron capacity of 350,000 MT/year, part of a planned production to 700,000 MT/year. This is
part of a plan to build the only integrated steel mill in the Philippines ever since Global Steel
Philippines, the former National Steel Corporation, stopped operating in 2010.

Compared to other steel producers (mini-mills and rolling mills) of similar capacities
(between 100,000 and 300,000 MT/year capacity) in Southeast Asia, Philippine producers are
able to price their products competitively. Local steel producers are able to make do with off-the-
shelf technology from China that are easy to install and that assure considerable savings in
energy expenses. Another technology where some mini-mills are willing to invest is in scrap
preheating, which raises the temperature of the scrap metal using the heat of exhaust gases
from the melting process. Other technology investments in the steel industry have considerably
reduced wastage from 4% more than ten years ago to an acceptable 1% of total output.
Although some mini-mills want to install furnaces to increase capacity up to 500,000 MT/year to
achieve optimal efficiency not one has proceeded for the reasons already mentioned, i.e., it
would not be competitive for them because of smuggling and other forms of government
corruption.

See Annex A for more details on the overview of steel production technology in the
Philippines.

g. Linkages with other industries16

The iron and steel industry is widely considered one of the catalysts of industrialization
and a major backbone of all industries in the economy. In fact, industrialization in many
countries is strategically linked with the growth and development of the iron and steel industry.

16
Based on the report entitled Production Linkages, Multipliers, and Multiplier Effects of the Iron and Steel Industry. The report
was prepared by Dr. Cid Terosa for the Philippine iron and steel industry road map. The full report is included in the annex.

Page 28 of 110
 Sustained long-run economic growth will require, among others, growth in public
spending for infrastructure and private construction spending. Greater public spending on
infrastructure and private construction spending will undoubtedly boost demand for iron and
steel products. In the Philippines, the surge of public-private partnerships in infrastructure
development, expansion of the real estate industry, growth of the housing industry, and the
emergence of the shipbuilding industry will intensify demand for iron and steel products.

To meet demand for its products, the iron and steel industry relies on other industries for
production inputs and on households for labor inputs. The web of production interrelationships
between the iron and steel industry and the rest of the economy intensifies production linkages
and produces multiplier effects that help expand output, household income, and employment.

Input-output analysis was used to quantify the multiplier effects of the Philippine iron and
steel industry and to measure the strength and diffusion of the industrys production. The results
of the analyses are discussed in Annex B and summarized below.

The production structure of the steel industry consists primarily of intermediate inputs
which account for about 66 percent (See Table 3.17). The major intermediate inputs of the iron
and steel industry are as follows:

1. Blast furnace, steel making furnace, steel works, and rolling mills
2. Electricity
3. Wholesale and Retail Trade
4. Manufacture of Non-Metallic Mineral Products (not elsewhere classified)
5. Petroleum Refineries

About 25.2 percent of the production structure of the iron and steel industry can be
traced to financial capital, 6.3 percent to labor inputs, two percent to physical capital inputs, and
about 0.5 percent to other primary inputs. In sum, about 34 percent of the production structure
of the iron and steel industry can be attributed to primary inputs. (see Table 3.17)

Table 3.17 - Production Structure, 2008

Inputs % share of inputs

Intermediate Inputs (including steel and
66.0
mineral products, power, trade, oil, etc.)
Primary Inputs
Finance 25.2
Labor 6.3
Physical Capital 2.0
Others 0.5
Total 100.0%

The production structure of the iron and steel industry is skewed towards intermediate
inputs since at least two-thirds of the total inputs of the industry can be traced to intermediate
inputs. This implies that changes in the iron and steel industry brought about by government
policy or external factors will affect producers of intermediate inputs more than suppliers of labor
and capital inputs. Also, this implies that the iron and steel industry can generate more
backward linkages since its demand for intermediate inputs is greater than its demand for
primary inputs.

Page 29 of 110
 The structure of the steel industry output is heavily geared towards other industry
sectors and not final demand (See Table 3.18). Approximately 88 percent of the output of the
iron and steel industry is allocated to intermediate demand. This means that most of the output
of the iron and steel industry is used as production input by other industries in the economy.
For example, 17.9 percent of the output of the iron and steel industry that is allocated to
intermediate demand goes to the manufacture of fabricated metal products while 17.3 percent is
distributed to the manufacture, assembly, and repair of office, computing, and accounting
machines.

Table 3.18 - Distribution of Output, 2008

Output Destination % share

Intermediate Demand 88.0
Manufacture of fabricated metal products except machinery and
17.9
equipment
Manufacture, assembly, and repair of office, computing, and
17.3
accounting machines
Manufacture of engines and turbines, except for transport equipment
16.6
and special industrial machinery and equipment
Construction 12.5
Manufacture of motor vehicle parts and accessories 6.7
Manufacture of other fabricated wire and cable products except
6.6
insulated wire
Cutlery, hand tools, and general hardware 4.4
Blast furnace and steel making furnace, steel mills and rolling mills 3.8
Manufacture of metal containers 3.3

Final Demand 12.0

Total 100.0%

A striking feature of the distribution structure of the iron and steel industry is its heavy
dependence on imports. Based on the input-output table, the iron and steel industry is a net
importer since its imports far outweigh its exports. Imports of the iron and steel industry are
about nine times greater than its exports. Also, imports of the iron and steel industry are around
97 percent of the total output allocated to intermediate demand or distributed to industries. As
computed from national input-output tables of NSCB, the rate of self-sufficiency of the iron and
steel industry has fallen from 55 percent in 1994 to only 46 percent for the entire steel industry
in 2000. The present figure cannot be higher as the local production structure has not
significantly improved since 2000.

Economic research shows that the domestic backward linkage of the iron and steel
industry remain strong. This denotes the significance of the sector in utilizing the output of other
sectors including electricity; households; wholesale and retail trade; petroleum refineries
including LPG; crude oil and natural gas; manufacture of other non-metallic mineral products;
telecommunication services; banking; real estate activities; and manufacture of asphalt,
lubricants, and miscellaneous products of petroleum and coal.

In contrast, the domestic forward linkages of the sector with downstream sectors are
relatively weak. This denotes the relatively low level of integration between the sector and other

Page 30 of 110
sectors. Specifically this finding also reveals the underdeveloped state of the manufacturing
industry in utilizing domestically produced steel products.

h. Supply chain, value chain, and local value added

Based on NSO survey data, total value added in the iron and steel industry summed up
to Php13,072 million in 2009. This figure is lower than the Php13,466 million posted in 2005
(See Table 3.19). The lower value added for the industry may be attributed to the significant
drop in international prices of intermediate steel in 2009. For the period, the sector engaged in
the operation of blast furnaces and steel-making furnaces which contributed more than half of
value added in the local iron and steel industry. This only proves that the operation of more
upstream steel products contributes more in terms of value-added to the entire Philippine steel
industry. This economic fact underscores the reality that the local manufacture of intermediate
steel products must never be sidelined to realize the higher value-added in the entire spectrum
of the iron and steel industry.

Table 3.19: Value Added17 by Subsector, 2009

(in million pesos)

Subsector Value Added

Operation of blast furnaces and steel making furnaces 7,118
Operation of rolling mills 2,287
Pipes and tubes manufacturing, iron or steel 645
Manufacture of pipe fittings of iron or steel 151
Manufacture of galvanized iron sheets, tinplates and other
coated metal products made in steel works of rolling mills 2,173
Steel works, not elsewhere classified 698
TOTAL 13,072
Source: Annual Survey of Philippine Business and Industry, NSO

i. Prices, income

Based on interviews with industry leaders, raw materials account for about 55% to 90%
of total production costs of steel products. Local prices follow global prices which in turn are
based on global supply-demand imbalances, and costs of other inputs. Majority of the raw
materials and semi-finished products used by the local steel industry are imported from Korea,
Vietnam, Russia and China. Power costs, which include fuel consumed and electricity use,
account for some 35% of total production cost. Transportation costs likewise make up about 5%
of product cost. Profit margin in the manufacture of long products ranges from 1% to 3%. Due to
higher value added, the margin for flat products is greater than long products at 7% to 8%.

3. Supply and Demand

a. Factors affecting supply

There have been no significant changes in the numbers of establishments and rated
capacity over the past three years (See Table 3.20). This development indicates that there
likewise have been no substantial investments in the industry. Firms find it cheaper to import
steel products than to manufacture them locally. The only changes have been to the billets and
17
Value added is gross output less intermediate input. Gross value for the manufacturing sector is the value of output plus industrial
services done for others. Intermediate input is intermediate cost plus non-industrial services done by others and all other cost.

Page 31 of 110
bars subsectors. One firm entered the billets subsector augmenting capacity with 120 MT, while
two new firms went into the production of steel bars with an additional combined capacity of 500
MT.
Table 3.20 - Philippine Iron and Steel Industry, 2010

Sector Product Type Number of Firms Total Capacity (MT)

2008 2010 2008 2010
Rolling / Hot-rolled coil / sheet 1 1* 1,700 1,700
Finished Cold-rolled coil / sheet 3 3* 1,210 1,210
products Galvanized sheet 10 10 1,408 1,408
Tinplate / Tin free 1 1* 210 210
Color coating 4 4 172 172
Semi-
finished Billet 9 10 1,260 1,380
products
Rolling / Bar 15 17 4,300 4,800
Finished Section 7 7 420 420
products Wire rod 4 4* 700 700
*non-operational since 2011
Source: SEAISI

The manufacturing of steel items in the Philippines generally start with the processing of
semi-finished products such as billets and slabs (See Figure 3.2). However, there are a number
of billet-making plants in the country that uses electric arc furnace to melt scrap iron and convert
them to billets. As of end-2010, combined billet production capacity of ten firms stood at 1.26
million metric tons per annum. About half of apparent consumption of billets comes from
imports. Billets are further processed to produce long products such as bars, shapes and
sections, wire rods, wires and other wire products, and fasteners.

The lack of an iron-making sector constrains the range of products that the local industry
can manufacture. Moreover, reliance on scrap-based billet steel-making limits the industrys
capability to produce high-grade steel products. These two factors are particularly relevant in
the case of flat steel production in the country. Slabs which are the semi-finished items used to
manufacture flat products, are mainly imported. There is currently no local slab production in the
country, while the firm that can produce HRCs are no longer in operations. The local industry
likewise imports cold rolled coils (CRCs), tinmill black plates (TMBPs), and tinplates. Tinplates
are further processed to produce food cans and containers, while CRCs are manufactured to
GI, Zn-Al, and pre-painted sheets. CRCs are also fabricated as purlins, light sections, drums,
steel furniture, etc.

The rated capacity across different products of the Philippine iron and steel industry is
lower compared with its Southeast Asian neighbors (See Table 3.21). The Philippines also has
a shorter range of steel products manufactured relative to its neighboring countries. Production
capacity of the local industry for most products is at least 40% lower compared the ASEAN
average. It is only for galvanized sheets and bars where the Philippine iron and steel industry
has comparable capacities. Hence, achieving self-sufficiency in the local iron and steel industry
will require substantial investments in the medium-term.

Page 32 of 110
 Figure 3.2: Philippine Iron and Steel Industry Flowchart

Source: Updated from Competitiveness in the Philippine Steel Industry by Marissa C. Garcia and Sandy Vicente (2005)

Page 33 of 110
 Table 3.21 - Production Capacities of the Iron and Steel Industry in the ASEAN Region, 2010
(in thousand metric tons)

Products Indonesia Malaysia Philippines Singapore Thailand Vietnam

Direct Reduced Iron (DRI) 2,000 3,630 0 0 0 0
Slab 1,800 2,500 0 0 3,000 0
Hot rolled coil / sheet 3,540 3,350 1,700 0 8,400 300
Cold rolled coil / sheet 1,610 2,140 1,210 0 2,700 2,165
Galvanized sheet 1,516 700 1,408 0 676 1,032
Tinplate / Tin-free 130 250 210 0 666 0
Color Coating 0 0 172 0 465 0
Welded Pipe 1,706 0 300,000 0 0 NA
Seamless Pipe 380 0 0 0 0 0
Billet 5,095 5,250 1,380 750,000 3,438 7,570
Bloom 0 750 0 0 630 0
Bar 3,696 7,180 4,800 0 7,700 7,250
Section 1,331 1,200 420 0 2,229 2,250
Wire rod 1,850 0 700 0 2,483 7,250
Wire mesh 476 500 0 0 0 0
Galvanized wire 0 250 100,000 0 0 0
Hard Drawn Wire 0 120 150,000 0 0 0
Bolts and Nuts 0 150 0 0 0 0
Source: SEAISI
.

Page 34 of 110
 There are two projects in the pipeline that will augment capacity of the local iron and
steel industry in the medium-term. The details of these of these two projects are shown in Table
3.22.

Table 3.22: Steel Projects

Company Location Description Status

Steel Asia Bulacan, 1,200 MT Twin Mini-Mill Project starts
Luzon 600K MT ReBar Line 4th Quarter
600K MT Section Line 2012
With Finished Product
Rebar 10mm 36mm Commissioning
Wide Flange Beams W4 W16 2015
Flat Bars
(ship building application)
Flat Bars
(automotive application)
Flat Bars (industrial grating)
Angles
Channels
PagAsa Steel Pinagbuhatan, 400K MT Rolling Mill for ReBar
Pasig City,
NCR
Source: SEAISI

Finished steel production in the Philippines has increased to 3.10 million MT in 2011 or
an average growth rate of 3.5% over the past five years (See Table 3.23). Over the same time
period, production of long products expanded by an average rate of 11.8% per annum, while the
manufacture of flat products declined by 15.4% per annum.

Production of semi-finished steel increased to 1.20 million metric tons in 2011 or by an

average growth rate of 16.5% per annum during the 2007-211 period. Local crude steel
products, which mainly consist of billets, are processed by using an electric arc furnace. Billets
are semi-finished products, which are further processed through rolling and drawing to produce
bars, rods and wires. Production of finished goods registered a much lower growth of 4.1% per
year.

Page 35 of 110
 Table 3.23: Philippine Production of Semi-Finished and Finished Steel Products, 2007-2011
(in metric tons)

Particulars 2007 2008 2009 2010 2011

Semi-Finished Products 718,000 710,669 824,009 1,050,000 1,200,000
Billets 718,000 710,669 824,009 1,050,000 1,200,000
Slabs 0 0 0 0 0
Finished Products 2,641,606 2,596,274 2,532,637 2,757,016 3,102,140
Long Products 1,669,984 1,738,845 1,979,690 2,347,108 2,620,000
Wire Rods 0 0 0 0 0
Bars1/ 1,411,931 1,520,414 1,611,659 1,931,438 2,100,000
Shapes and Sections1/ 77,622 77,857 179,065 201,074 320,000
Sheet Piles 0 0 0 0 0
Wires 180,431 140,574 188,966 214,596 200,000
Rails 0 0 0 0 0
Others (Alloy and Stainless Steels) 0 0 0 0 0
Flat Products 971,622 857,429 552,947 409,908 482,140
Plates 0 5,714 0 0 0
Hot Rolled Coils / Sheets 292,006 215,192 102,062 0 0
Cold Rolled Coils / Sheets 269,596 184,254 100,187 5,552 0
Cold Rolled Electrical Sheets 0 0 0 0 0
GI Sheets / Pre-Painted / Zn-AL2/ 357,736 313,807 293,180 354,000 392,140
Tinplates / TFS 0 0 0 0 0
Pipes and Tubes 52,284 138,462 57,518 50,356 90,000
Others (Alloy and Stainless Steels) 0 0 0 0 0
Sources: BOC, DTI, PISI, SEAISI, and industry sources
1/
Includes bar products converted from wire rods
2/
2010 figure revised using new industry data

Page 36 of 110
 During the 2007-2011 period, the share of the long products to total finished steel
production was more than 70%, with the remainder accounted for by flat products. Bars
accounted for more than 60% of total local finished steel production. Steel bars, which can be
categorized as plain or deformed, are commonly used for construction projects. Steel bars,
which are categorized as long products, generally serve as tensioning devices in reinforced
concrete and reinforced masonry structures holding the concrete in compression. GI sheets,
pipes and tubes are the leading flat products manufactured by the local industry.
Capacity utilization rate across the iron and steel sector was computed using production and
rated capacity data culled from the SEAISI. The results of the computation are presented in
Table 3.24.

Table 3.24: Capacity Utilization Rate, 2011

Capacity Production
Utilization
Product Thousand Thousand
Rate (%)
MT MT
Hot-rolled coil / sheet 1,700 0 0.0
Cold-rolled coil / sheet 1,210 0 0.0
Galvanized sheet1/ 1,408 267 19.0
Tinplate / Tin free 210 0 0.0
Color coating 172 125 72.7
Billet 1,380 1,200 87.0
Bar 4,800 2,100 43.8
Section 420 320 76.2
Wire rod 700 0 0.0
Source of Basic Data: SEAISI
1/
Includes GI sheets and Zn-Al

There is a wide variation in the capacity utilization rates across the different steel
products. Utilization rates are highest for billets at 87%, while lowest for galvanized sheets at
19%. However, the utilization rates are generally understated since total capacity includes firms
which are not longer operational but whose plants have not been decommissioned. Currently,
only six finished steel products are produced locally sections, bars, galvanized sheets, color
coated sheets, wires and pipes and tubes. Imports generally account for more than 45% of the
countrys demand for finished steel products. In general, low capacity utilization rates mean
lesser units of goods are produced and higher fixed costs per unit.

b. Factors affecting demand

Apparent consumption is used as a proxy variable for local demand for iron and steel
products. Apparent consumption is computed as production plus imports less exports. Apparent
consumption of semi-finished products stood at 2.32 million metric tons in 2011 or an average
growth rate of 6.7% per annum over the past five years (See Table 3.24). The robust demand
for semi-finished steel products was traced to the 10.5% annual expansion in apparent
consumption of billets. Demand for slabs contracted by an average rate of 50% per annum
during the same time period.

During the 2007-2011 period, apparent steel consumption of finished products expanded
by average rate of 9.9% per annum. Demand for long products outpaced those of flat products,
11.0% versus 8.4%. Bars, which are primarily used by the construction sector, accounted for
close to 38% of demand for finished steel products (See Table 3.25 on next page). The other

Page 37 of 110
products with significant shares were GI sheets (10%), hot rolled coils/sheets (8.1%), wire rods
(7.8%), and cold rolled coils/sheets (7.6%). Among the major finished steel products, plates
registered the fastest growth rate at 17.6% per annum. This was followed by bars and GI sheets
which posted similar growth rates of 14.4% per annum.

About 80% of demand for finished steel products in the country is cornered by the
construction industry (See Table 3.26). Steel products used in the construction of buildings,
houses, and infrastructure facilities include rebars, angles, channels, beams, sheet piles, wires
and wire rods, GI, Zn-Al and pre-painted sheets, and pipes and tubes. Light and heavy
fabrication firms, including shipbuilding and repair, account for about 15% of demand. Finished
steel products demanded by the fabrication sector include ship plates, plates, hot rolled coils,
cold rolled coils, EGI and other coated sheets, specialty bars, rods, and stainless and alloy
steels. The share of total steel demand of the packaging sector is about 4%. Packaging firms
are the main users of tinplates and tin-free steel for food cans and other containers.

Table 3.26: Comparative Steel Demand (in percent)

Particulars 2010 2011

Construction 80% 81%
Light and Heavy Fabrication 15% 14%
Packaging 4% 4%
Others 1% 1%
Source: SEAISI

Page 38 of 110
.
Table 3.25: Apparent Steel Consumption, 2007-2011
(in metric tons)

Particulars 2007 2008 2009 2010 2011

Billets
Production 718,000 710,669 824,009 1,050,000 1,200,000
Imports 1,026,265 853,128 1,117,790 1,169,998 1,111,252
Exports 0 9,300 0 0 0
Apparent Steel Consumption 1,744,265 1,554,497 1,941,799 2,219,998 2,311,252
Slabs
Production 0 0 0 0 0
Imports 319,079 250,139 64,286 0 8,759
Exports 0 0 0 0 0
Apparent Steel Consumption 319,079 250,139 64,286 0 8,759
Long Products
Production1/2/ 1,489,553 1,598,271 1,790,724 2,132,512 2,420,000
Imports 719,922 582,911 473,435 642,827 703,520
Exports 8,259 2,126 319 829 0
Apparent Steel Consumption 2,201,216 2,179,056 2,263,840 2,774,510 3,123,520
Flat Products1/
Production 292,006 215,192 102,062 0 0
Imports 1,341,698 1,311,506 1,167,438 1,442,976 2,035,241
Exports 211,690 136,815 73,449 104,007 0
Apparent Steel Consumption 1,422,014 1,389,883 1,196,051 1,338,969 2,035,241
Sources: BOC, DTI, PISI, SEAISI, and industry sources
1/
Covers hot-rolled products only in order to avoid double counting
2/
Excludes bar products converted from wire rods

Page 39 of 110
 During the 2007-2011 period, more than 50% of demand for steel products is sourced
from imports (See Table 3.27). There has been no change in the share of imports to demand
over the past 15 years. For instance, imports accounted for 43.6% of demand in 1996, which
was before the Asian financial crisis. Most local iron and steel companies are unable to compete
with low-cost producers from countries like China, Russia, Japan, and Korea. Thus, consumers
opted to import their steel requirements rather than purchase them from local manufacturers.

Table 3.27: Apparent Consumption, Philippines: 2007-2011

(percent share)

Particulars 2007 2007 2008 2009 2011

Production 49.2 50.8 54.7 51.8 46.9
Imports 56.9 53.1 47.4 50.7 53.1
Exports -6.1 -3.9 -2.1 -2.5 0.0
Apparent Consumption 100.0 100.0 100.0 100.0 100.0
Source: SEAISI

Philippine apparent consumption levels are much lower than those of its Southeast
Asian neighbors (See Table 3.28 on next page). Local steel consumption of 4.25 million MT in
2010 was 70% to 75% lower than Thailand and Vietnam. The countrys ratio of long-to-flat
product consumption was 65:35 in 2010 compared to 39:61, 26:74 and 44:56 for Malaysia,
Thailand and Vietnam, respectively. The ratio for Indonesia, which has a comparable per capita
GDP with the Philippines, was 40:60 in 2010. Based on international experiences, the ratio of
flat-to-long product consumption of most developed economies averages around 70:30.
Generally, as the domestic economic continues to grow, steel consumption shifts from
construction of basic infrastructure and housing to manufacturing industries with higher value
added such as automotive, electronic precision equipment, household appliance, packaging,
and ship building and repair. Based on recent SEASI data, the ratios for Australia and Korea in
2010 were 25:75 and 33:67, respectively.

Imports accounted for about 45% of apparent consumption of finished steel products in
2011 (See Table 3.29 on page 46). However, there is a marked difference in the import
dependency of long and flat products. Imports comprised about 80% of flat products, while the
comparable figure for long products is significantly lower at 23%. There are only four finished
steel items wherein local production accounts for more than 50% of apparent consumption.
These are bars, shapes and sections, wires, and GI, pre-painted and Zn-Al sheets. The first
three items are categorized as long products. In the case of semi-finished products, the import
dependency of billets is about 48%, while almost all of slabs are imported.

Page 40 of 110
 Table 3.28: Apparent Consumption of Finished Steel Products in the ASEAN Region, 2010
(in thousand metric tons)

Products Indonesia Malaysia Philippines Singapore Thailand Vietnam

Rails and Accessories 40.3 22.2 2.2 14.9 0.0 0.0
Steel Sheet Piles 9.0 21.0 29.9 54.5 2,825.4 0.0
Sections 718.4 521.2 390.9 257.7 0.0 194.1
Bars 1,765.4 2,080.5 1,996.5 1,444.9 0.0 4,580.7
Wire Rods 1,034.2 1,477.2 336.9 0.0 1,466.4 1,448.3
Plates 672.3 418.7 280.7 283.9 530.5 362.6
Hot-Rolled Sheets and Strips 1,295.4 1,942.3 197.0 280.9 6,065.3 3,546.3
Tyres and Wheels 0.0 0.3 0.0 0.0 0.0 0.0
Cold-Rolled Sheets and Strips 1,221.8 1,567.3 282.6 150.8 2,421.6 1,926.7
Cold-Rolled Electrical Sheets 53.0 128.4 1.6 58.9 110.6 0.0
Galvanized Sheets 532.2 1,071.8 257.7 -21.8 1,751.4 0.0
Tinplates 223.2 156.2 137.1 56.2 351.4 0.0
Other Metallic-Coated Sheets 390.9 281.1 183.5 48.0 917.7 1,355.3
Pipes and Tubes 951.0 890.5 156.4 50.0 0.0 746.1
TOTAL 8,907.1 10,578.9 4,253.0 2,678.9 16,440.4 14,160.0
Source: SEAISI

Page 41 of 110
 Table 3.29: Apparent Steel Consumption, 2010 and 2011 (in percent share)

Particulars 2010 2011a/

P M X AC P M X AC
Semi-Finished Products 47.3 52.7 0.0 100.0 51.7 48.3 0.0 100.0
Billets 47.3 52.7 0.0 100.0 51.9 48.1 0.0 100.0
Slabs --- --- --- --- 0.0 100.0 0.0 100.0
Finished Products 58.2 44.0 2.2 100.0 53.1 46.9 0.0 100.0
Long Products 78.4 21.6 0.0 100.0 77.4 22.6 0.0 100.0
Wire Rods 0.0 100.0 0.0 100.0 0.0 100.0 0.0 100.0
Bars 96.7 3.3 0.0 100.0 94.8 5.2 0.0 100.0
Shapes and Sections 51.4 48.6 0.1 100.0 64.1 35.9 0.0 100.0
Sheet Piles 0.0 100.0 0.0 100.0 0.0 100.0 0.0 100.0
Wires 92.2 8.0 0.2 100.0 83.3 16.7 0.0 100.0
Rails 0.0 100.0 0.0 100.0 0.0 100.0 0.0 100.0
Others (Alloy and Stainless Steels) 0.0 100.0 0.0 100.0 0.0 100.0 0.0 100.0
Flat Products 23.5 82.5 6.0 100.0 19.6 80.4 0.0 100.0
Plates 0.0 100.0 0.0 100.0 0.0 100.0 0.0 100.0
Hot Rolled Coils / Sheets 0.0 111.3 11.3 100.0 0.0 100.0 0.0 100.0
Cold Rolled Coils / Sheets 2.0 107.0 9.0 100.0 0.0 100.0 0.0 100.0
Cold Rolled Electrical Sheets 0.0 100.0 0.0 100.0 0.0 100.0 0.0 100.0
GI Sheets / Pre-Painted / Zn-AL 65.5 42.1 7.6 100.0 56.6 43.4 0.0 100.0
Tinplates / TFS 0.0 100.0 0.0 100.0 0.0 100.0 0.0 100.0
Pipes and Tubes 32.2 78.5 10.7 100.0 33.2 66.8 0.0 100.0
Others (Alloy and Stainless Steels) 0.0 100.0 0.0 100.0 0.0 100.0 0.0 100.0
Sources: BOC, DTI, PISI, SEAISI, and industry sources
a/
Details of export figures not yet available for 2011
P = Production, M = Imports, X = Exports, AC = Apparent Consumptions

Page 42 of 110
c. Leading players (countries and companies)

The Peoples Republic of China is the worlds leading steel producer with total crude
steel production of 683.3 million tons in 2011 (See Table 3.30). Chinas production accounted
for close to 46% of total world crude steel production. A distant second was Japan with a
production volume of 107.6 million tons or 7.2% of total. China is likewise the worlds leading
exporter of both semi-finished and finished steel products with an estimated 56.3 million tons in
2008.

Table 3.30: Leading Producers of Crude Steel by Country

(in million tons)

Country 2007 2008 2009 2010 2011

China 494.9 500.3 573.6 626.7 683.3
Japan 120.2 118.7 87.5 109.6 107.6
USA 98.1 91.4 58.2 80.6 86.2
India 53.5 57.8 62.8 68.3 72.2
Russia 72.4 68.5 60.0 66.9 68.7
South Korea 51.5 53.6 48.6 58.5 68.5
Germany 48.6 45.8 32.7 43.8 44.3
Ukraine 42.8 37.3 29.9 33.6 35.3
Brazil 33.8 33.7 26.5 32.8 35.2
Turkey 25.8 26.8 25.3 29.0 34.1
WORLD 1,351.3 1,326.5 1,219.7 1,413.6 1,490.1
Source: World Steel Association

China is a net exporter of steel products to the ASEAN region. Net exports to the region
amounted to 5.35 million MT in 2010 with imports of 0.59 million MT and exports of 5.94
million MT. Most of the imports of the ASEAN region from China are semi-finished steel
products used for its rolling mills.

On the other hand, the list of the largest steel-producing companies in the world is
shown in Table 3.31. ArcelorMittal S.A. is the largest steel producing company in the world with
97.2 million tons in crude steel production in 2011. The Luxembourg-based company is also the
market leader in steel for use in automotives, construction, household appliances, and
packaging. A distant second is the Hebei Iron and Steel Group, a state-owned enterprise, with
crude steel production of 44.4 million tons. Hebei Group is the company that resulted from the
merger between Tangsteel and Hansteel in the Hebei province of China. Six out of the ten
largest steel producing companies in the world are Chinese firms. Moreover, there is only one
European firm and no American firms in the worlds top steel producing companies.

Page 43 of 110
 Table 3.31: Top Steel Producing Companies

2011 Crude Steel

Company Production Country
(million tons)1/
ArcelorMittal 97.22/ Luxembourg
Hebei Group 44.4 China
BaoSteel Group 43.3 China
POSCO 39.1 South Korea
Wuhan Group 37.7 China
Nippon Steel 33.4 Japan
Shagang Group 31.9 China
Shougang Group 30.0 China
JFE 29.9 Japan
Ansteel Group 29.83/ China
Source: World Steel Association
1/
Includes stainless steel when applicable
2/
Includes allied subsidiaries with less than 30% share
3/
Includes Panzhihua but not Benxi

d. Consumption of goods per capita (local and global)

The Philippines has one of the lowest apparent steel use per capita in the ASEAN region
at 44.2 kilograms of crude steel equivalent (See Table 3.32). Only Myanmar has a lower
apparent steel use per capita than the Philippines. The differences in steel consumption per
capita are usually attributed to the higher level of economic development of its neighboring
countries. However, the countrys per capital steel consumption is also lower than the countries
with the same or even lower level of GDP per capita. For instance, Vietnam, which has per
capita gross national product (GNP) of US$1,160 in 2010, has apparent steel use per capita of
149.7 kilograms. Compare this with the Philippines which has a per capita GNP of US$2,060
(77% higher than Vietnam) but with an apparent steel use per capita of only 44.2 kilograms
(70% lower than Vietnam). Furthermore, Thailands per capita GNP of US$4,150 is about twice
that of the Philippines but its steel consumption per capita is 5.6 times higher. Indonesia has
relatively the same per capita GNP and steel use per capita ratio as the Philippines. Indonesias
per capita GNP was US$2,500 in 2010, while its apparent steel use per capita was 44.8.

Table 3.32: Apparent Steel Use Per Capita

(in kilograms crude steel equivalent)

Country 2006 2007 2008 2009 2010

Bangladesh 6.2 6.0 5.4 11.1 12.3
China 299.4 333.0 342.6 426.5 445.2
Hong Kong, China 568.1 564.9 348.7 416.3 274.4
India 44.3 49.4 50.0 53.1 56.3
Indonesia 32.3 37.0 45.1 37.1 44.8
Japan 653.3 674.1 652.9 446.2 538.6
North Korea 16.3 12.2 11.3 11.7 9.3
South Korea 1,084.9 1,189.7 1,266.5 975.1 1,122.1
Malaysia 323.1 360.2 397.5 330.5 367.2
Myanmar 12.2 12.1 11.3 18.3 20.8

Page 44 of 110
 Country 2006 2007 2008 2009 2010
Pakistan 18.0 18.0 13.6 15.2 14.8
Philippines 39.8 44.5 43.9 41.7 44.2
Singapore 667.9 834.6 928.2 760.0 644.5
Sri Lanka 24.8 24.4 20.0 19.9 21.4
Taiwan 1,044.2 949.3 887.6 588.9 926.0
Thailand 237.4 217.4 249.7 186.1 245.4
Vietnam 71.3 124.9 113.9 141.0 149.7
ASIA 185.1 201.6 205.8 221.5 237.8
Source: World Steel Association

The low steel use per capita of the Philippines may be partly due to the countrys
economic structure. The service sector, which is not as steel intensive as the industrial sector,
accounts for about 56% of the countrys GDP. The largest consumers of steel are the
construction, household appliance, packaging, and shipbuilding and repairs subsectors. These
four subsectors are part of the industrial subsector. Service is also the countrys fastest sector
with a 5.1% growth posted in 2011. The industrial sector managed a growth of only 2.3%.

A similar trend can be gleaned in the Philippines steel intensity (See Table 3.33). The
countrys steel intensity of 0.020 kilograms per US dollar is much lower than the regions
average of 0.038 kilograms per US dollar. The countrys steel intensity has stagnated at 0.020
kilograms per US dollar as nominal GDP grew at a faster rate than apparent steel consumption,
14.1% versus 5.4%. The economic expansion has not resulted in increased demand for steel
products.

Table 3.33: Steel Intensity

(in kilograms per US dollars)

Country 2006 2007 2008 2009 2010

Indonesia 0.017 0.017 0.017 0.014 0.013
Malaysia 0.043 0.041 0.038 0.034 0.035
Philippines 0.026 0.024 0.020 0.020 0.020
Singapore 0.018 0.017 0.019 0.015 0.012
Thailand 0.063 0.051 0.049 0.041 0.044
Vietnam 0.101 0.131 0.090 0.112 0.102
Average 0.045 0.047 0.039 0.040 0.038
Source: SEAISI

However, the silver lining in the Philippines low apparent steel use per capita and low
steel intensity is the local iron and steel industry has a strong upside with an improvement in the
long-term prospects of the economy. According to an August 2009 report of the Institute of
Developing Economies18, the relationship between the level of economic development and steel
consumption follows an inverse U-shape. Steel intensity generally increases with an expansion
in per capita GDP. Steel intensity peaks at a per capita GDP of US$15,000 to US$20,000, and
then decreases as per capita further increases. With a maturing economy, steel substitutes
such as plastics come into play, thereby reducing steel usage per commodity.

Based on the latter assumption, the present steel intensity in the Philippines of both long
and flat steel products are far below the levels required for sustained economic development as
18
Hajime Sato. The Iron and Steel Industry in Asia: Development and Restructuring. IDE Discussion Paper No. 210. August 2009.

Page 45 of 110
experienced by other more developed countries. The steel intensity for long steel products was
above, if not equal to, the international trend from 2002 to 2004 but has since fallen far behind
the international norm based on similar per capita GDP levels (see Figure 3.3). Likewise, the
steel intensity for flat steel products was close to 90% of the international trend in 2003, but has
since dropped and the gap continues to widen (see Figure 3.4).

If the standard trajectory between apparent steel consumption and rising incomes (GDP
per capita) across countries is followed, the current levels of apparent steel consumption for
long steel products are only 57% of the standard required at current income levels (see Figure
3.5). The figure for flat steel products is even lower at 35% (see Figure 3.6). The estimates are
fairly conservative being at the low end of steel consumption patterns experienced in Thailand
and Malaysia.

The projected steel consumption can be used as the starting basis for a framework on
measuring industry performance in terms of meeting development requirements. In this regard
one possible measure is the ratio between the actual ASC and the required ASC which currently
stands at 57% and 35% for long and flat steel products respectively in 2011. The interim long
term targets are 70% by 2030 for both major product segments. The corresponding ASC levels
are shown in Table 3.34.

Page 46 of 110
.

Page 47 of 110
.

Page 48 of 110
 Table 3.34 Apparent Steel Consumption Targets

GDP per LONG Steel Products FLAT Steel Products

Capita ($) mil MT Model Target mil MT Model Target
2008a 1,918 2.32 4.46 52% 1.78 4.80 37%
2009a 1,827 2.59 4.32 60% 1.50 4.66 32%
2010a 2,123 2.77 5.14 54% 1.55 5.52 28%
2011a 2,223 3.12 5.50 57% 2.04 5.89 35%
2012 2,329 3.35 5.88 57% 2.20 6.28 35%
2013 2,438 3.58 6.28 57% 2.41 6.71 36%
2014 2,561 3.84 6.74 57% 2.73 7.18 38%
2015 2,692 4.13 7.24 57% 3.08 7.69 40%
2016 2,833 4.51 7.78 58% 3.47 8.25 42%
2017 2,984 4.86 8.37 58% 3.90 8.86 44%
2018 3,141 5.07 8.59 59% 4.17 9.06 46%
2019 3,280 5.33 9.03 59% 4.56 9.51 48%
2020 3,419 5.69 9.48 60% 4.98 9.95 50%
2021 3,558 6.06 9.93 61% 5.41 10.40 52%
2022 3,697 6.43 10.38 62% 5.86 10.85 54%
2023 3,836 6.82 10.82 63% 6.32 11.29 56%
2024 3,974 7.22 11.27 64% 6.81 11.73 58%
2025 4,113 7.62 11.73 65% 7.31 12.18 60%
2026 4,252 8.04 12.18 66% 7.82 12.62 62%
2027 4,391 8.46 12.63 67% 8.36 13.06 64%
2028 4,530 8.90 13.08 68% 8.91 13.50 66%
2029 4,669 9.34 13.53 69% 9.48 13.94 68%
2030 4,808 9.79 13.99 70% 10.06 14.37 70%
Legend: (a)ctual otherwise forecast or target
Sources: IMF projections (April 2012), UA&P estimates

e. Global Outlook for Philippine Steel Exports

Aside from determining Philippines standard and bilateral comparative advantage in the
steel and iron export, it is also equally important to highlight the countrys structural performance
in order to identify where the Philippines stands in the global steel market. Among the selected
Asian countries, China, Indonesia, Japan, Malaysia, Philippines and Thailand are considered as
emerging markets by the International Monetary Fund (IMF). The Economist meanwhile adds
Korea and Singapore in the emerging market economies list. Both institutions nonetheless
agree that Japan has a mature market economy.

The term emerging markets was coined by the World Bank economist Antoine W. van
Agtmael in 1981 in reference to countries experiencing rapid economic growth and
industrialization. Such classification of countries is based on the composition of countries
export earnings and other income from abroad. Emerging and developing economies are often
transitional economies, shifting from closed economies to open market economies. It usually

Page 49 of 110
involves structural or policy reforms such as currency or capital market changes and high level
of foreign.19 On the other hand, a mature economy is a stable economy characterized by a
stable population that lessens the pressure to create more jobs for a larger workforce. It has low
growth, yet still enough to financially support retirees, and generally low inflation.

A positive outlook lies ahead for the Philippines and the rest of the emerging Asian
countries (except for Japan probably) as the trend for the global steel production is shifting from
mature economies to emerging market economies. Europe and the United States show a
weakness in both GDP and industrial production as GDP is forecast to grow less than 2.0% in
both 2011 and 2012, as opposed to an expected 9.0% and 7.5% growth in 2012 for China and
India, respectively.20 This reason should not lead to complacency. Asian economies are still
facing challenges with regards to the steel and iron exports. For one, although the steel industry
has been recovering since the global financial crisis, the recent Eurozone sovereign debt crisis
has created a lot of uncertainty in the market. With the uncertain economic environment, many
countries have implemented a number of austerity measures while others have suspended
investment in infrastructure and other industries altogether. Consequently, steel demand has
not rebounded as strongly as expected. Growth in steelmaking capacity still exceeds steel
demand in 2011 by an estimated of 493 million tonnes capacity.21 The very nature of
steelmaking and large amounts of capital investment also supports the existence of excess
capacity. The sector cannot easily and quickly adjust to changing conditions. Thus, by the time
the global economic crisis hit in 2009 to 2009, steel mills were still operating at high capacity
even though demand fell off drastically. Another challenge which the market confronts is the
increased volatility in the cost of raw materials of steel. The shortage of these supplies has
allowed suppliers of iron ore and metallurgical coal to rebuild the pricing mechanisms through
shifting from annual to shorter-term price contracts. This has led to greater problems.
Steelmakers should now deal not only with the volatility in raw material prices but also in
maintaining margins with fluctuating demand. With these, the current trend among steel
companies has been to reduce costs by entering into joint ventures, where the costs are being
shared between the parties. In turn economies of scale and technological advances are created,
which usually reduces the cost base.22

See Annex C for more details on the comparative advantage of Philippine steel
products.

19
Stanley Lt Labs. Economy Watch <accessed http://www.economywatch.com/world_economy/emerging-markets/ July 18, 2012>
20
World Economic Outlook: Slowing Growth, Rising Risks, IMF, as cited by Ernst & Young, Global steel 2011 trends 2012
outlook<accessed
http://www.ey.com/Publication/vwLUAssets/Global_steel_2011_trends_2012_outlook/$FILE/Global_Steel_Jan_2012.pdf July 18,
2012>
21
Chronic oversupply hits cyclical headwinds China Steel sector, JPMorgan, as cited by Ibid.
22
Sangwook Cho as cited by Ibid

Page 50 of 110
 Chapter 4

SUPPORT TO INDUSTRY DEVELOPMENT

1. Specific Industry Programs

Government support to the local iron and industry has taken various shapes and forms
over the past 30 years. In 1979, President Ferdinand Marcos announced a plan for the
development of 11 major industrial projects. The projects included in the plan were steel, petro-
chemical, pulp and paper, copper smelter, aluminum, phosphate fertilizer, diesel engines, gas
and oil, coconut industry, and nuclear power plant. The main objective of the plan was to shift
the focus of the countrys industrial sector from consumer goods to basic heavy industry. The
plan was never realized due to the oil price shock and the debt crisis in the early 1980s that
resulted in massive capital flight and eventually a deep economic recession.

In 1981, the government became directly involved in the iron and steel business when
the National Development Corporation assumed full ownership of the National Steel Corporation
(NSC). With the implementation of a five-year expansion, the NSC evolved into a major player
in the iron and steel sector. In early 1990s, the NSC became the leading producer of billets, a
major producer of flat-rolled products, and the countrys only tinplate producer.

Under the governments privatization program, Malaysias Wing Tiek Group acquired
controlling interest in NSC in November 1994. Two years later, Wing Tiek sold its entire equity
stake (69%) to another Malaysian company, Hottick Investment Ltd. Last October 2000, the
Securities and Exchange Commission ordered the liquidation of the NSC citing that Hottick
Investment was unable to service its debts amounting to US$350 million. After several years
under liquidation, NSC was eventually sold by private creditor banks and the government to
Global Ispat Holdings Ltd. . The company was later on renamed Global Steel Philippines Inc..
Even with a new management team on board, the company continues to experience financial
losses due to insufficient operating capital, and competition from cheaper, unfairly traded import
products. By 2010, Global Steel, the countrys largest steelworks, decided to shut down its
operations in the Philippines after its power connection was cut by the National Power
Corporation over long overdue unpaid electric bills.

Under the administration of President Corazon Aquino, RA No. 7103 or An Act to

Strengthen the Iron and Steel Industry and Promote Philippine Industrialization and for Other
Purposes dated 8 August 1991 was enacted into law. It provided a comprehensive framework
for the development of an integrated iron and steel industry. This recognized the importance of
development of the iron and steel industry as the springboard and basis for launching Philippine
industrialization.

The objectives of the law are as follows:

a) Provide a framework for a rational integrated iron and steel program consistent with the
requirements of the government environment protection;
b) Establish a policy direction concerning the rationalization of government corporations in
the iron and steel industry;
c) Provide measures to strengthen its demand and supply structures primarily through the
establishment of an integrated iron and steel plant which is technologically and

Page 51 of 110
 economically efficient, internationally competitive and contributing to industrialization and
accelerated development of the country;
d) Provide stiffer penalties for smuggling of iron and steel products; and
e) Provide for a set of quality and industry standards for iron and steel products.

The law also provided a set fiscal and non-fiscal for enterprises duly certified by the
Board of Investments (BOI). These incentives included:

a) Entitlement to generate its own electricity, either directly or through co-generation, build-
operate-and-transfer and other contracts;
b) Financing of projects through official development assistance;
c) Tax and duty exemptions on imported equipment;
d) Tax credit on domestic capital equipment;
e) Authority to contract loans, credits and indebtedness in any convertible foreign currency
or capital goods from foreign financial institutions or fund sources; and
f) Rationalization of the countrys tariff incentive and protection scheme to enhance the
viability of the local iron and steel industry.

There was also a specific provision in the law that provided stiffer penalties for
smuggling upon the operation of the smelting plants. The maximum penalty stipulated in the law
was a fine of not less than Php300,000 and imprisonment of not less than 12 years for unlawful
importation of iron and steel products with an appraised land value of at least Ph150,000.

The law also outlined measures to strengthen the linkages of the iron and steel industry
with other economic enterprises. It provided for Investment Coordinating Committee of the
National Economic and Development Authority to formulate a plan for the development and
establishment of upstream and downstream industries identified with the iron and steel industry.
These industries included, among others, basic household tools, precision tools, engines, and
shipbuilding.

The fiscal incentives provided under this law are no longer applicable since their
effectivity lapsed in 2006 after a 15-year applicability period.

In order to ensure the effective implementation of RA No. 7103, a Presidential Iron and
Steel Committee was created by virtue of Executive Order (EO) No. 73 dated 25 March 1993.
The functions of the committee were the following:

a) To advise and recommend polices to the President of the Philippines on the overall
direction of the iron and steel industry in the Philippines;
b) To coordinate and enhance collaboration among agencies of the government involved in
the implementation of RA No. 7103;
c) To monitor the progress of implementation of RA No. 7103 and to recommend measures
for the consideration of concerned agencies of the government as may be necessary to
assure the proper and expeditious implementation of the law; and
d) To coordinate closely with and enlist the support of the private sector, particularly in the
iron and steel industry, and to do all such other acts as may be required to accomplish
the functions of the committee.

The committee was comprised of five cabinet secretaries and four representatives from
the private sector to be appointed by the President, two of whom shall be the President of PISI
and the Chairman of the National Steel Corporation.

Page 52 of 110
2. General Support

With the lapse of the availability of the incentives provided under RA No. 7103, no laws
have been recently enacted which related specifically to the iron and steel industry. The last law
issued by the government related to the iron and steel industry was EO No. 375 dated 22
October 2004. This law modified the rate of import duty on certain iron and steel products under
the Tariff and Customs Code of 1978. It provides that these iron and steel products will be
levied the Most-Favored-Nation rates of duty.

The development of local iron and steel industry is specifically mentioned in the
Philippine Development Plan 2011-16 as a priority sector which need to be rationalized to
address not only the local requirements but should also compete in the export market. The
sector is identified as a Preferred Activity in the Investment Priorities Plan (IPP) of the Board of
Investments in 2012. According to industry sources, the iron and steel industry can still be
classified as a strategic project under the list of preferred activities of the BOI. Strategic projects
are those that exhibit social economic returns that will significantly contribute to the countrys
economic development.

Under the Omnibus Investments Code of 1987, eligible strategic projects shall be
entitled to the following fiscal and non-fiscal incentives

Income tax holiday of between four to six years from commercial operations;
Tax credit on domestic capital equipment;
Exemption from contractors tax;
Simplification of customs procedures;
Unrestricted use of consigned equipment;
Employment of foreign nationals;
Tax credit for taxes and duties on raw materials;
Access to bonded manufacturing / trading warehouse system;
Exemption for taxes and duties on imported spare parts; and
Exemption from wharfage dues and any export tax, duty, impost and fee.

With the exception of the access to official development assistance, the incentives
provided under RA No. 7103 for the iron and steel industry as similar to those under the
Omnibus Investments Code for strategic projects.

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 Chapter 5

THREATS AND OPPORTUNITIES ANALYSIS

1. Threats and Concerns

a. Brain Drain

Over the past several years, the local industry is experiencing some semblance of brain
drain. As the local industry continues to face stiff competition from low-cost producers abroad, a
number of its technicians and engineers are being enticed with more attractive offers in
Singapore, Taiwan, and the Middle East.

b. High Power Cost

The iron and steel industry is highly energy-intensive industry due to the huge
requirements of the electric arc furnaces. According to industry estimates, the share of fuel and
electricity cost to total operating cost is within the range of 5-30% depending on the technology
and age of steel plant and the type of steel product produced. The countrys lack of available
sustainable power in Mindanao and high cost of electricity have been cited as impediment to the
development of the local iron and steel industry and one of the major factors why it cannot
compete in the international markets. Presently, the Philippines has one of the highest
electricity prices in the Asian region (See Table 5.1)

Table 5.1: Electricity Cost in Southeast Asian Region, 2011

Country Electricity Cost (US$ per kWh)

Philippines 0.10
China 0.08
Malaysia 0.07
Indonesia 0.07
Thailand 0.06
Vietnam 0.07
Source: Philippine Development Plan
National Economic and Development Authority (NEDA)

Aside from high costs, reliability of supply and quality of electricity can also be problems
confronting local firms particularly those located in Mindanao and the Manila Electric Company
franchise area. Severe and persistent voltage fluctuations can damage machinery and
equipment, thereby driving up maintenance costs. Firms have to the shoulder extra costs to
ensure a reliable supply of quality electricity.23 Firms have implemented the successful strategy
of producing during offpeak hours to avail of the lower power rates that reduces their power
costs.

c. Product Standards

23
Vicente, Sandy and Marissa C. Garcia (2005)

Page 54 of 110
 Monitoring of product standards of steel items sold in the domestic market is another
industry concern. The Bureau of Product Standards (BPS), an attached agency of the
Department of Trade and Industry (DTI), is the government agency responsible for monitoring
product standards in the country. The BPS is mandated to develop, implement, and coordinate
standardization activities in the Philippines.24 There are several cases where market leaders
complain of cost cutting from competing firms who deliberately lower product quality below
those set by the BPS.

Several years ago, there were complaints from local galvanizers over the
implementation of Philippine National Standards (PNS) for GI sheets. These firms were
clamoring for the relaxation of import standards and local regulations to give consumers more
flexibility and preference to choose for their needs and requirements. On the other hand, a
group of galvanizers are proposing the adoption of the International Organization for
Standardization (ISO) standards in order to protect consumers from substandard products. PNS
67 is Philippine standard for GI sheet roofing. It specifies a minimum base metal thickness of
0.35 millimeters and a zinc coating of 215 grams per square. Just recently, the enforcement of
the PNS for GI sheets has been put on hold by a court order requested by some galvanizers.

d. Smuggling

Smuggling is another market malpractice that continues to plague the local iron and
steel industry. Smuggling of steel products can occur through: (1) technical smuggling; (2)
diversion through customs-bonded warehouses; and (3) outright smuggling. Technical
smuggling is prevalent through undervaluation of prices, misdeclaration of nature of goods,
misclassification of tariff heading, and undervaluation of volume or weight (see Box 3). On the
other hand, in outright smuggling, imported goods are not registered at all with customs and
other institutions. In majority of cases, outright smuggling is a criminal offense.25

Rampant smuggling has severe repercussion on the local iron and steel industry. It has
resulted in the closure of several steel plants in the country. Meanwhile, capacity utilization of
the surviving firms continues to drop with unabated smuggling. Moreover, smuggling creates an
unlevel playing field among competing firms since the effective price of the smuggled raw
materials and/or intermediate goods are much lower than the prevailing market price. The bulk
of the smuggled steel products come from China.

Box 5: Technical Smuggling is killing us softly

MALAYA; Published on Tuesday, 18 September 2012

Written by DUCKY PAREDES

This gives the Customs Collector of the Port too much discretion and is almost an open
invitation to corruption.
THERE is a Joyland Industries Corporation in Mandaue, Cebu. This is a misnomer. The
company does nothing industrial. It does not have a proper steel plant to speak of. Yet, it sells
nothing but steel products. Joyland is engaged mainly in the importation of finished steel
products, mainly smaller sized steel wire rods distributed through hardware stores and used for
small construction projects.

24
Bureau of Product Standards website (www.bps.dti.gov.ph)
25
Steelwatch. A publication of the Philippine Iron and Steel Institute. September 2008 issue.

Page 55 of 110
What is remarkable about Joyland is that it is able to import finished products like wire rods at
prices below prevailing industry rates for -- not even finished products scrap metal at least
as far as it declares the value of its shipments for Bureau of Customs purposes.
For instance, on May 9, 2012 Joyland brought in a shipment of 7,904.17 metric tons of finished
steel wire rods. The declared value of the imports was US$279 per metric ton. The prevailing
value of steel wire rods sold by Russia during the April-May 2012 period ranged from $640 to
$700. In short, Joyland was declaring the value of its imported products at less than half the
prevailing market prices.
The Metal Bulletin Weekly put the prices of scrap metal at their highest in January 2011 at
$480-495 per metric ton and lowest in November of that year at $395-405 per metric ton.
Joyland was declaring its imported finished products substantially lower than scrap prices. How
could this possibly happen? And, how could Customs accept this valuation, if there is no prior
collusion?
***
Last April, a shipment of similar steel wire rods entered the Port of Manila. The shipment valued
the same exact product at $575 per metric ton. Because the product was priced below standard
international pricing guides, the shipment was placed under investigation by the CIIS. The same
exacting scrutiny is so glaringly absent at the Port of Cebu --- regarding the undervalued imports
of Joyland in particular.
This is not an isolated case. Joyland has been consistently undervaluing its importation for
years. According to post-entry audit, from December 2006 to November 2009 alone, the total
discrepancy in Joylands payment of duties and taxes amounted to P 125,959,793.57. This
represents lost government revenues.
From November 2009 to the present, Joyland imported additional undervalued products
amounting to tens of thousands of metric tons, apparently enjoying lax treatment from the BOC
District Collector for Cebu, Atty. Ronnie C. Silvestre.
The Philippine Iron and Steel Institute, the Galvanized Iron Wire Manufacturing Association and
other industry groups have written a stream of letters to the Customs Commissioner and the
Secretary of Finance complaining about the technical smuggling being done by Joyland --- with
the apparent collusion of the Cebu Customs Collector.
The standard excuse given by Customs officials is that the Bureau follows the Transaction
Value Method for determining taxes and duties due imported products.
What this means is that the importer simply presents documents indicating the value of the
shipment, provided these are notarized by accredited lawyers from the source. Their declaration
is simply accepted, if the Customs Collector concerned chooses to do so, without using any
other reference to crosscheck the declared value.
This is, clearly, a serious flaw in the system, especially in a government that claims to be
exclusively travelling on the Daang Matuwid!
This gives the Customs Collector of the Port too much discretion and is almost an open
invitation to corruption. The Collector may simply accept the declared value offered by an
unscrupulous importer with no further documentation. It opens a large gateway for undervalued
imports to enter our market, devastating local industries. It keeps the doors wide open for
properly connected practitioners to engage in technical smuggling.

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For steel products in particular, there exists a Metal Bulletin Weekly indicating prevailing prices
for metal products traded globally. All the Customs Bureau needs to do, if the BOC really wants
to curb technical smuggling, is to cross-reference the importers valuation with prices indicated
in the bulletin. In this digital world, where correct information may be sourced in seconds, one
has to wonder why our Bureau of Customs has not updated its systems to prevent
misdeclaration by importers.
***
It is not enough for the Customs Commissioner and his Cebu District Collector to smugly tell off
legitimate Filipino industries by saying they follow the Transaction Value Method. This method,
as so glaringly demonstrated by the records of Joylands in-your-face undervaluation, is so
easily corrupted. Then, again, maybe there are those in the Customs Bureau bent on
maintaining the margins of discretion that open the windows for bribery.
It was so much easier to curb technical smuggling when the Philippine government retained the
services of the Societe Generale de Surveillance (SGS). The global firm monitored product
prices internationally and kept our own Customs fully informed of actual pricing levels. In
addition, the SGS tracked imports from the foreign manufacturers, assuring the integrity of
pricing information.
Intense lobbying from smugglers caused the cancellation of the Philippine government contract
with SGS. This opened so much space for technical smuggling.
***
But, with advances in information technology, our Customs Bureau doesnt even need an SGS
anymore. The BOC, in any Philippine port, can easily source industry information globally, if the
BOC chooses to do so. Why doesnt the BOC do this? If we really want reforms in the BoC
one of our most corrupt agencies this should first come in the form of improvements in its
information systems.
Information management is what the Deputy Commissioner for Intelligence should be relying
on. Clearly, the retired general in charge of intelligence is inclined to do old-fashioned cloak-
and-dagger spying. That is so out-of-date. That is so un-modern. Gen. Danilo Lim will impress
us better if he walks around with a laptop and not a gun. The information needed to stop
smuggling is so easy to access from international industry bulletins.
The case of Joyland demonstrates how backward we are or, maybe, how backward the corrupt
officials prefer we remain so that they can continue plying their illicit trade. How else can
finished goods be slipped in day after day at prices way below scrap metal?
At some point, both the Department of Finance and the Bureau of Customs ought to explain to
our public how technical smuggling continues to proliferate on such a destructive scale. That
explanation, given all we now know about the activities of Joyland, should guide us on whether
to believe in the fairy tale of the existence of a tuwid na daan.
Technical smuggling does not only deny government billions in lost revenues. Smuggling, given
the tight global economic environment, can also wipe out Filipino industries. Technical
smuggling (just as simple smuggling) will wipe out jobs and economic opportunities for our
people.
As a country with as many people as ours and a constantly increasing population, we need
industry, not just trade and commerce. Certainly, a steel industry is an essential. With a BOC,

Page 57 of 110
the way that it is, there is no way that this country can be competitive and get anywhere!
http://www.malaya.com.ph/index.php/160-news-flash/13283-technical-smuggling-is-killing-us-
softly

e. Truck Weight Limit

Last May 2011, the Department of Public Works and Highways (DPWH) announced the
strict enforcement of the restrictions on both the allowable axle load of 13,500 kilograms (kgs)
and gross vehicle weight, which ranges from 16,880 kgs to 41,000 kgs depending on the
number and configuration of axles. The enforcement of these restrictions is provided in RA No.
8794 or An Act Imposing a Motor Vehicle Users Charge of Owners of All Types of Vehicles
and for Other Purposes dated 27 June2000. The main objective of the law is to save the
countrys road network for the adverse effects of overload.

A number of industry association such as the PISI, the Confederation of Truckers

Association of the Philippines (CTAP) and the Pulp and Paper Manufacturers Association have
expressed their concerns with new directive. Considering that about 80% of the trucks and
trailers operating in the country have only three to four axles, the DPWH directive will effectively
cut average payload by about half. This will result in an increase in freight costs and higher
cargo handling and storage chargers. Furthermore, it will worsen traffic conditions since it will
take more take more trips to transport the same amount of payload.26

Fortunately, the DPWH has put on the hold indefinitely the implementation of the anti-
overloading provisions. The CTAP has proposed that 13,500 kg per axle be the sole basis for
determining truck weight limit. Both the Philippine Ports Authority and the DTI have expressed
their opposition to the since the truck load limit imposed is lower that what is internationally
recognized. Based on international standards, 20-foot and 40-foot containers are built and
designed for a maximum gross weight of 24,000 kgs and 30,480 kgs, respectively for cost
efficiency in shipping, storage and handling.27

f. High Distribution Cost

Based on the Doing Business report prepared annually by the World Bank and the
International Finance Corporation, the associated costs of trading across borders are higher in
the Philippines compared with most of its Southeast Asian neighbors (See Table 5.2). Due to
the bulky character of semi-finished and finished steel products, the transportation of these
goods poses a challenge to the industry. The availability of required equipment and facilities for
handling bulk cargo is critical in minimizing losses during transportation.

The cost to export in the Philippines of US$630 per container is more expensive
compared with Malaysia (US$450), Thailand (US$625), and Vietnam (US$580). The same can
be said for the cost to import, which is estimated to be US$730 per container. The estimated
cost is likewise higher than Indonesia (US$660), Malaysia (US$435), and Vietnam (US$670).
The items considered in the computation of the cost required to export and import were all
documentation, inland transport and handling, customs clearance and handling, and port
terminal handling. The computations were based on official costs only and do not include bribes.

26
RA No. 8794 Anti-loading law, The Manila Bulletin, March 22, 2011.
27
Ibid.

Page 58 of 110
 Table 5.2: Cost of Trading Across Borders, 2012

Timor Leste
Philippines

Performer
Indonesia

Lao PDR

Malaysia

Thailand

Vietnam

globally
Best
Indicator

Trading across border 54 39 168 29 17 89 68 Singapore (1)

(rank)
Documents to export 7 4 9 6 5 6 6 France (2)
(number)
Time to export 15 17 44 17 14 25 22 Hong Kong
(days) (5)
Cost to export 630 644 1880 450 625 1010 580 Malaysia
(US$ per container) (450)
Documents to import 8 7 10 7 5 7 8 France (2)
(number)
Time to import 14 27 46 14 13 26 21 Singapore (4)
(days)
Cost to import 730 660 2035 435 750 1015 670 Malaysia
(US$ per container) (435)
Source: Doing Business in the Philippines, 2012
World Bank and International Finance Corporation

Logistics costs which accounts for about 5% of total costs are particularly high for
domestic distribution that includes inland sea freight and port charges. In some cases, direct
shipments costs from certain foreign ports (i.e., Japan, Taiwan, and China to Cebu, Davao and
Cagayan de Oro) are lower compared with transporting goods from Manila to Davao (See Table
5.3). The higher freight rates are largely blamed on inefficiencies in marine transport such as
inadequate port and vessel capacities, and ineffective port management and administration.28
The lack of competition in the shipping industry has likewise contributed to higher transport
costs. With limited competition, firms have no incentive to minimize costs since these can be
simply passed on to the consumer of service through higher charges. It is important to note that
firms (as in the case of Steel-Asia in Davao) have successfully reduced their distribution costs
by building plants closer to the markets they serve.

28
Llanto, Gilbert M., Enrico L. Basilio, and Leilanie Basilio. Competition Policy and Regulation in Ports and Shipping. PIDS-World
Bank Competition Policy Project. February 5, 2004.

Page 59 of 110
 Table 5.3: Comparative Freight Rates (2005)

Particulars Manila to HK to Bangkok Klang to

Davao Manila to Manila Manila
Freight Cost*
(US$ per 20-foot container) 623 248 595 672
Distance (nautical miles) 519 619 1,189 1,343
Sailing Time (days) 1.5 1.5 8.0 8.0
Freight Cost per Nautical
Mile 1.20 0.40 0.50 0.50
* rounded figures made specific (= distance x freight cost per nautical mile)
Source: Llanto et al, Competition and Regulation in Ports and Shipping, 2005.

g. Industry Data and Statistics

There is the absence of a centralized agency to gather data on the domestic iron and
steel industry. As such, there exists the problem of conflicting data from the concerned
government agencies (e.g. Bangko Sentral ng Pilipinas (BSP), BOC, Bureau of Import Services,
NSO, and NEDA). The availability of timely and reliable industry data and information is
important for planning purposes and for monitoring and evaluating performance of the sector.

2. Opportunities

Three trends are making it likely that the Philippines is poised to enter a phase of long
term rapid economic growth which will deepen and broaden markets for houses, roads and
other products that will require steel products. First, the labor force will be growing faster
(increasing by over 1 million per year) than the youth and elderly. Second, the government and
private sector are investing more in the health and schooling of people. Third, the country is
currently one of the darlings of local and foreign investors which could be further reinforced by a
possible raise of our sovereign credit rating to investment grade based on real gains in fighting
corruption and managing government finances.

We reckon that is likely that the government, companies and civil society could work
together to prepare this labor force by investing in their health and schooling and to attract the
investments that will generate the well-paid jobs to match this prepared labor force which could
cause the Philippine economy to grow from 7-10% a year till 2040: the 2011 GDP per person in
2011 prices ($2,345) could at least double in 2026 ($4,700); quadruple in 2040 ($9,400). The
resulting growth of the middle class should raise the demand for roads, houses and office
buildingswhich should expand the demand for reinforcing bars, galvanized sheets and other
locally produced steel products.

Four other trendshigher wages of Chinese workers, labor shortage in Japan and
Korea, the flooding of export manufacturing zones in Thailand, and the slowdown in the Chinese
economyare making these major industry players look at the Philippines as a possible site for
market and production expansion. If we are able to attract investments into appliances, ships
and auto parts and to form part of a regional production chain to manufacture these products to
form a critical mass of downstream users of flat steel products, we could attract more foreign
industry players to form joint ventures with local playerswhich have emerged leaner and
stronger after surviving the adverse economic conditions of the past decadeto produce flat
steel products.

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3. Elements of Industry Competitiveness

The extent to which the Philippine Iron and Steel industry is able to seize the benefits of
long term phase of rapid economic growth beckoning amid these opportunities hinges on its
competitiveness relative to its industry players in region: Vietnam, China, Indonesia and Korea.
Industry competitiveness consists in the ability of its firms to sustain its present and to further
raise its competitive advantage: a combination of external circumstances and firm-specific
capacities that keeps the costs of its product costs lower than its competitors and enables it to
make future products providing a higher value and thus commanding a higher price to
consumerssuch as flat and specialty steel products. A steel company succeeds in sustaining
their competitive advantage when it continuously upgrades its capacitiesorganization of work
flow, technology, workers skills -- which enable it to find ways to cut costs and produce higher
value added goods. In the end, local steel firms leverage their competitive advantage in two
ways: they manufacture present products at low costs as they expand into untapped local
markets and they shift their production portfolio to high-value products as the markets for their
present products get saturated. It is a given that steel companies are the main protagonists in
sustaining their competitive advantage and they will carry their own weaknesses and face their
threats. To a large extent their success in this task depends on the moves they make to
maximize their strengths to capture the opportunities in whatever operating environment they
currently face. The role of government is to complement the industry in these efforts.

The government can support local companies sustain their competitive advantage. First,
the government can implement programs that can lower the costs of steel production which
include electricity, logistics, raw materials and labor. For example, the government can construct
and manage an efficient transport network of roads, airports, and harbors which reduces
logistics costs (which includes the handling, storage and transportation of raw materials and
finished products.). Second, it could focus on implementing infrastructure projects that increases
the market for steel products and all policies that make the economy vibrant. For example, it
could ramp up the bidding and implementation of its public-private partnership projects for it will
have a direct effect on increasing the demand for steel products such as reinforcing bars and
galvanized sheets which keeps the present firms viable and convinces to invest in additional
production capacity. Improved infrastructure also makes it easier for tourists to visit resorts and
for educated workers to commute to higher paying jobs in central business districts from
affordable houses in areas at the periphery both of which grows the economy rapidly for the
long terms and thus provides a steady, predictable growth in markets for steel products which in
turn attracts more investments and growth in the industry.

Third, it could support an environment that encourages local and foreign investment into
the industry. For example, the government could maintain fair competition between local and
foreign producers should the Bureau of Customs reduce the smuggling of steel products
through an under-declaration of value and misclassification of steel products. Moreover, local
governments and national agencies could lower the costs of doing business by reducing the
time to process applications and paying business permits and taxes. Keeping a predictable set
of sound investment policies and improving the management of our educational system that
expands the pool of productive workers sufficiently flexible to produce higher value products to
match their higher wages makes the country an attractive site for investors. This makes it easier
for local firms to invest and attract foreign investments to expand their manufacturing of present
and new steel products.

Page 61 of 110
 Chapter 6

RECOMMENDATIONS

To enable the Philippine iron and steel industry to fulfill its mission and achieve its vision
in 2030, we have crafted a set of recommendations addressing 13 areas which would apply to
the industry as a whole. Based on the comments we received during the industry forum and
several meetings, we initially formulated recommendations to address nine areas of concern
related to industrial competitive advantage. We crafted these recommendations to fulfill the
industry players' perennial request for government to implement current programs and enforce
rules (See areas 1 to 4) and to suggest initiatives these industry players could undertake to
complement the government's efforts to raise industry competitiveness (See areas 5 to 9). After
circulating these recommendations to the industry players, we received additional comments
which we considered to craft recommendations related to four areas in which government and
industry players could seize opportunities in the business environment (See areas 10 to 13).

These recommendations should have the combined effect of supporting the overall
strategy of helping industry players sustain their competitive advantage by keeping the costs of
present products lower than their competitors and enabling them to produce higher value
products in the future. All government, sectoral and agency efforts at improved implementation
of programs should be directed in supporting this overall strategy.

It is a given that steel companies are the main protagonists in sustaining their
competitive advantage and they will carry their own weaknesses and face their threats. To a
large extent their success in this task depends on the moves they make to maximize their
strengths to capture the opportunities in whatever operating environment they currently face.
The role of government is to complement the industry in these efforts. The recommendations
that are chosen for implementation must be adapted to the operating environment of global
competition and relatively freer trade that steel companies are facing.

1) To reduce the costs of importing raw materials and losses of revenue due to unfair
competition, the DFA and DTI can work to remove the negative impact of a tariff distortion
caused by a 0% tariff on finished steel products and a 3% tariff on raw materials for steel
production (such as steel scrap and billets) by hastening to reduce the 3% tariff on raw
materials to 0%. As mentioned above, the BOC can implement a one-page description of
customs fees and procedures to reduce unfair competition coming from steel imports due to
the under-declaration of value and misclassification of steel products. To reduce losses in
revenue due to the entrance of substandard steel products, the DTI can mount a product
standards campaign by providing its provincial counterparts with more manpower and funds
to inspect the quality of steel products.

2) To improve the reliability in the supply of power and lower electricity costs, the Department
of Energy (DOE) could hasten the full development of the Wholesale Electric Spot Market
and could work with related agencies to ease investment and operation of more power
plants. The DOE could review the maintenance schedules of the countrys power plants to
assure a steady, supply of power needed by the industry players. Industry players could
adapt an effective practice of producing during off-peak hours to take advantage of lower
power rates which leads to reduced electricity costs.

Page 62 of 110
3) To reduce logistics costs, handling procedures at the harbors could be streamlined by
implementing a service contract wherein the port management contractors and Bureau of
Customs will present a one-page description of services to be delivered at a set fee and
deadline similar to the model of the Naga City Citizens Charter: this is a guidebook which
describes a step-by-step procedure in availing of a service, includes who, when and how the
service is delivered and the city official they can turn to if they find that the city service was
not delivered or was delivered poorly. This will reduce loss of customs and steel company
revenues due to the misdeclaration of value and misclassification of steel imports. The
DPWH and DOTC can implement a truck ban and road axle policy that balances the goal of
reducing more traffic congestion, with minimizing the wear-and-tear of trucks on the road
network, while keeping transport costs of steel companies low.

4) To encourage investment in the Philippine Iron and Steel Industry, the different government
agenciessuch as the DPWH, BIR, BOC, DTI, DOE, in particularcan work together to
keep a credible and consistent set of investment policies that makes the Philippines an
attractive site for foreign investments. The government can implement its programs that
grow the economy rapidly which in turn grows the office building and housing markets which
in turn have a derived demand for steel products. A rapidly growing economy also means
household incomes reach levels that demand high value productssuch as cars,
applianceswhich in turn use flat and specialty steel products and thus will make
investments in these steel products viable.

5) To make the sector more attractive for local and foreign investors, steel companies can aim
to attain ISO accreditation in relevant areas. They can work with other industry associations
to form a cluster of SME suppliers close to the site of their steel plants. This will multiply the
job generation impact of their plants to the communities as well as assuring a steady supply
of inputs for their production. In the medium term, the robust companies in the industry could
team up to be part of a regional production chain which could answer the need of expanding
the base of downstream steel users that could expand the markets of present steel products
and create markets for high value steel products particularly in specialty and flat products.

6) To enlarge the pool of workers for the industry, the industry associations can work with
TESDA and vocational schools to improve the delivery of vocational programs and to raise
the student enrollment of its programs. They can expand their on the job training programs
with vocational schools. Industry associations can work with universities to support
programs that encourage competencies needed for all workers such as critical thinking,
communication and people skills. They can start their endowment programs to provide
scholarships that will attract the upper-third of a graduating high school class to study for a
college degree in education, which is what the more successful educational systems in
Singapore and Finland have done.

7) To answer the need for a set of consistent and timely delivered industry data, the industry
players can work with university economic and engineering departments to maintain an
industry data bank which would include regular analysis of business economic prospects of
the local and regional industry. The industry center could host dialogues between
government, industry and civil society to come up with and implement activities that will
support the competitive advantage of the industry players.

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8) To complement the implementation efforts of the BOC and DTI provincial standards
monitoring teams, the industry players can work with these agencies to fund and man
independent standards and customs transactions monitoring teams in the steel products
consistent with the legal and policy requirements of the said agencies.

9) To help companies upgrade their capacities continuously, so necessary to sustain their

competitive advantage, the industry players need to implement in-house programs that
foster a culture of lifelong learning and thinking strategically. They may institute a
mentoring program where each worker is coached by another worker in the company, where
they agree to set goals and action plans and review them that contribute to attaining the
vision set by company. After feedback by the DTI on this roadmap report, the steel
companies could set their own strategies and timelines and together they can come up
strategies and guidelines for the industry which will be constantly reviewed by an iron and
steel industry center which could be a division under BOI.

10) To incorporate additional strategies that worked into this roadmap, the government can
learn from the ASEAN experience. The Philippines used to be equal to, or above, its ASEAN
neighbors Thailand, Indonesia and Vietnam in terms of industrial performance, particularly in
the iron and steel sector. In the past ten (10) twenty (20) years, they improved by leaps
and bounds, leaving us behind in many ways. Perhaps the government should look deeper
into the things these other countries did right these can be valuable lessons and useful
inputs to our ongoing road-mapping exercise.

11) To address the supply gaps in iron and steel production, government can initiate a study to
see the feasibility of integrating upstream all the way to mining. The biggest challenge in
meeting the supply gaps in iron and steel production is to satisfy the input feed requirements
of the midstream flat and long steel products manufacturing. Doing this requires a reliable
long-term supply of domestic iron ore and coal in order to stay globally competitive. The
emergence of new technologies may now allow us full integration, in partnership with the
mining sector, to maximize domestic value-added in the overall supply chain. Reciprocally,
this linkage could give the mining sector an extra justification for a reviving their interrupted
activities in exploration, development and operations.

12) To improve their production cost efficiencies, industry players should take a serious look at
effective strategies that local companies are using to reduce their operating costs. To tap
the full benefits of the economies of scale in steel production, they need to take a serious
look at purchasing equipment using current technology that have production capacities at
least three times larger than most existing steel mills which were built using second hand
equipment based on older technology imported from countries who were upgrading their
plant equipment. One way of doing this is start a local plant using the capital, experience
and know-how of foreign steel companies who are on the lookout for expansion
opportunities in robustly growing markets such as the Philippines. Given that the size of
regional markets are big enough to support plants using current technology, industry players
can adapt the strategy of Steel-Asia to build a steel plant closer to the markets (as in the
case of their Davao plant set to operate in fourth quarter of 2013) to save on distribution
costs. They can consider shifting their production schedules to off-peak hours to avail of the
lower power rates that lead to reduced electricity costs.

13) To help industry players identify new products to diversify into, they can team up with
universities to host initiatives that connects them to local end users of steel products via

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 communities of practice: a network of product users, manufacturers, steel centers,
industrial designers, exporters of products with steel components who are selected based
on their willingness to share their expertise to whoever may need at mutually beneficial
arrangements. One of the suggested outcomes of these communities of practice would to
conduct regular investor sessions which would consist of identifying products of downstream
users (which could include niche design-intensive products) in canning, nuts and bolts
manufacturing, tools and other forged steel products, automotive manufacturing, shipping,
and appliance sectors to which local industry suppliers could supply the needed steel
products as inputs at competitive prices. The Philippine Exporters Foundation and DTI can
work with these communities of practice to conduct new export discovery workshops which
would gather small groups of investors, steel service centers and exporters develop new
export products. Demand for steel products in the country continues to be dominated by the
construction sector, accounting for about 80% of total demand. In the case of Thailand, the
construction sector accounts for only 54% of total demand. Other major consuming sectors
in Thailand include automotive, machinery and industrial, appliance, and packaging. These
communities of practice could also award innovation prizes for manufacturing solutions
that reduce energy costs and carbon emissions in steel plants.

Without withholding the necessary efforts to implementing the above recommendations,

we reckon that the government should refocus its efforts in implementing the recommendations
addressing area 1 because it addresses the strategic significance that industry players have
placed on setting up a level playing field against uneven and unfair trade practices (i.e.
smuggling, uneven tariffs and substandard steel products). In the same vein, we would advise
industry players to work at implementing the recommendations in area 5 because it supplies the
missing link of investments needed to complete the chain of raising production capacities and
broadening product lines which they find to be at the crux of their strategies to raise their
competitive advantage.

Page 65 of 110
 REFERENCES

Arizabal, Antonio. (2003). Roadmap for the Technological Upgrading of the Philippine Iron and
Steel Industry to Achieve Global Competitiveness. Paper prepared for the Metals
Industry Research and Development Center, Department of Science and Technology in
cooperation with the Department for Trade and Industry and the Philippine Iron and Steel
Institute.

ASEAN Iron & Steel Industry Federation. 2011 Directory

Bureau of Product Standards website (www.bps.dti.gov.ph)

Garcia, Marissa and Sandy Vicente. (2005). Competitiveness in the Philippine Steel Industry.
Paper presented during the technical workshop on industry studies for the Meeting the
Challenges of Globalization: Production Networks, Industrial Adjustment, Institutions and
Policies, and Regional Cooperation Project, September 26-27, 2005, Manila, Philippines.

International Finance Corporation (2012). Doing Business in the Philippines 2012.

Labs, Stanley Lt. Economy Watch <accessed

http://www.economywatch.com/world_economy/emerging-markets/ July 18, 2012>

Llanto, Gilbert M., Enrico L. Basilio, and Leilanie Basilio (2005). Competition Policy and
Regulation in Ports and Shipping. PIDS-World Bank Competition Policy Project.
February 5, 2005

National Economic and Development Authority (2011). Philippine Development Plan 2011-2016

National Statistics Office. Annual Survey of Business and Industry (2003, 2005 and 2009)

OECD (2011). Developments in Steelmaking Capacity of Non-OECD Economies

Philippine Iron & Steel Institute. 2006-2007 Directory

Philippine Iron & Steel Institute. Philippine Country Reports 2008 to 2011.

Philippine Iron & Steel Institute. Steelwatch industry newsletters

Sato, Hajime (2009). The Iron and Steel Industry in Asia: Development and Restructuring. IDE
Discussion Paper No. 210. August 2009

South East Asia Iron & Steel Institute. Statistical Yearbooks. Various years

Southeast Asian Iron & Steel Institute website (www.seaisi.org)

Vicente, Sandy (2005). Basic metal and Metal Products - Industry Competitiveness and
Readiness for Further Trade Liberalization: Facing the Finalization of the DOHA
Development Agenda Paper presented during the technical workshop on industry
studies for the Meeting the Challenges of Globalization: Production Networks, Industrial

Page 66 of 110
 Adjustment, Institutions and Policies, and Regional Cooperation Project, September 26-
27, 2005, Angelo King International Conference Center, Manila, Philippines.

World Economic Outlook: Slowing Growth, Rising Risks, IMF, as cited by Ernst & Young,
Global steel 2011 trends 2012 outlook<accessed
http://www.ey.com/Publication/vwLUAssets/Global_steel_2011_trends_2012_outlook/$F
ILE/Global_Steel_Jan_2012.pdf July 18, 2012>

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ANNEXES
A. OVERVIEW OF STEEL PRODUCTION TECHNOLOGY IN THE PHILIPPINES
B. PRODUCTION LINKAGES, MULTIPLIERS, AND MULTIPLIER EFFECTS OF THE IRON AND STEEL
INDUSTRY
C. ANALYSIS OF PHILIPPINE COMPARATIVE ADVANTAGE IN IRON AND STEEL EXPORTS

Page 68 of 110
 ANNEX A

OVERVIEW OF STEEL PRODUCTION TECHNOLOGY IN THE PHILIPPINES

Introduction

The basic production process for iron and steel products has three stages and facilitates
the competitive analysis of the state of technology of the industry. This also determines the
types of firms involved in iron and steel production present in a country, the level of investment
required, the volume and value of economic output, and the future prospects for upgrading
technology or capitalizing on advances in steel production technology.

Steel production has three basic stages. Stage 1 is iron production. Stage 2 is steel
production. Stage 3 is rolling and surface treatment.

Stage 1: Iron Ore to Pig Iron

Stage 1 is production of iron, which is the raw material for steel production. This stage
turns iron ore into pig iron with the use of blast furnaces of the Basic Oxygen (BOF) or Open
Hearth (OHF) type, using high-grade coking coal as a reducing agent.

The main sources of iron ore in the world are China, Australia, Brazil, India and Russia,
which accounted for more than half of total world production in 2010.29

Another technology turns raw iron ore into sponge iron through a DRI (directly reduced
iron) furnace, which uses natural gas or low-grade coal as a reducing agent. Pig and sponge
iron have about the same iron content, but have different properties and therefore their own
merits.

Pig iron is usually in solid (lumpy) form and has a typical humpy shape (hence, its
designation as pig). Pig iron is used in foundries for cast and wrought iron castings or for
Stage 2 (steel production).

Sponge iron or DRI has a solid metallic form but a spongy microstructure. The product
can be shaped into briquettes for ease of transport and is mostly used for steel production, and
because of its high rate of oxidation,has to be processed as quickly as possible to avoid rusting
and other hazards due to its pyrophoricity or combustibility upon exposure to air30.

Stage 2: Pig or Sponge Iron to Steel

Stage 2 is steel production, where pig or sponge iron, or scrap metal, are the raw
materials that are converted through combustion or burning into steel, an iron-based alloy
containing carbon, silicon, manganese, and other trace elements. This is done through the
removal by burning or oxidation at high temperatures of impurities. Several options include the
use of any of several available technologies such as an LD Converter (LDC), Electric Arc
Furnace (EAF), Electric Induction Furnace (EIF), Energy Optimising Furnace (EOF), Converter
Arc Furnace (CONARC), or a Cyclone Converter Furnace (CCF). The different furnace

29
"U.S. Geological Survey". Retrieved 2011-12-20.
30
Valipour, MS, "Mathematical Modeling of a Non-Catalytic Gas-Solid Reaction: Hematite Pellet Reduction with Syngas", Scientia
Iranica, 16(2c), 108-124, 2009. (http://www.scientiairanica.com/Issues/00113/2009/v16/n2.aspx)

Page 69 of 110
technologies are distinguished by the fuel used by which the pig iron is melted and/or how
oxygen is mixed with the molten iron.

LDC, using Austrian technology, blows oxygen through a water-cooled tube. EAF uses a
high-voltage electric arc passing through graphite electrodes or chemicals to melt the pig iron or
scrap, while oxygen is introduced through a consumable pipe lance.

EIF uses electromagnetic induction to melt the iron; while this is more energy efficient
and clean, its processing capacity is very limited compared to EAF technology.31 EOF combines
three independent, interconnected reactors, a furnace to produce steel, a preheater to heat the
scrap and a recuperator to recover waste heat and to reuse by heating oxygen, which is injected
at high speed to promote decarburization and at low speed to promote post combustion.32

CONARC and CCF are the latest technologies in steel making. CONARC, developed by
Mannesmann Demag in the 1970s, combines electrode arc melting with top-blowing of oxygen
for hot metal treatment.33 CCF, developed in 2004, is part of the Hlsarna steelmaking process,
which bypasses the pig iron phase by processing iron ore directly into steel, with the injection of
oxygen into a cyclone of crushed iron ore and hot gas. CCF is a cleaner technology that meets
EU environmental and energy efficiency standards.34

Molten steel is then cast into primary products that solidify upon cooling into intermediate
or semi-finished products, each weighing anywhere from 15-20 tons. These Stage 2 products,
called ingots, generally come in three shapes and sizes and are known in the industry as
blooms, billets or slabs.

Blooms are square or rectangular in shape, measuring approximately 150mm x 200mm,

or roughly 6 x 8.

Billets are similar to blooms but have a square cross-section and a smaller cross-
sectional size, e.g., 120mm square or less.

Slabs are rectangular, wide, semi-finished steel products that are 150mm to 250mm
wide with a thickness that is 3 to 4 times the width. Thin Slabs are cast continuously in a thin
slab casting machine to a width of 35-50mm.

These Stage 2 finished products are the raw materials for the next stage.

Stage 3: Rolling Steel to Finished Products

Stage 3 is rolling and surface treatment, and this is where the steel products of Stage 2
are rolled and, in some cases, surface-treated into finished products ready for sale to
consumers. In this final stage:

31
EIF: 40,000-50,000 MT/year. EAF: 300,000 MT/year. ^ Phillip F. Ostwald, Jairo Muoz, Manufacturing Processes and Systems
(9th Edition), John Wiley & Sons, 1997 ISBN 978-0-471-04741-4 page 48.
32
R. H Tupkary and V R Tupkary: Steel time International, 2006, Vd 30 No.8 P28/31;
33
D. Malmberg et.al. Microwave technology in steel and metal industry, an overview, ISIJ Intern. Vol
47(2007) P.433
34
Van den Brink, Erwin (3 September 2010), "Nieuwe ijzertijd" (in Dutch), De Ingenieur 122 (13): 5051,

Page 70 of 110
 Blooms are hot-rolled into heavy sections, sheet pilings, grinding balls for
mining use, and large diameter steel bars. Blooms are sometimes rolled into billets in a
billet mill.;
Billets are rolled into long finished steel products such as construction
steel rebars, rods and light sections; and,
Slabs are hot rolled into flat products like plates, sheets, and strips for use
in the shipbuilding, automotive, appliances or construction industries.

Included in stage 3 are pipe mills which turn slabs into steel pipes of various diameters.
This also includes surface coating plants which turn thin slabs into tin cans for packaging use or
into galvanized iron roofing sheets.

Figure 1 contains a schematic diagram of the steelmaking process.35

Steel Scrap

Steel is one of the most recycled materials in the world, because recycling is cheaper
than mining and processing iron ore, aside from many other technical and scientific reasons,
such as the lower melting point of steel compared to iron (therefore, lower energy consumption),
lesser requirements for chemical substances (to turn steel into cast form), and lower waste
disposal costs. In the U.S., for example, recycling of steel scrap accounts for more than half of
total steel production and saves the steel industry up to 75 percent of its energy requirements
yearly.36

The most significant advantage of steel that makes recycling economical is that steel
does not lose its inherent material properties during the process of melting down steel so it
could be turned into something else, e.g. steel bars recycled into slabs and plates, or
automobile steel components recycled into large diameter bars for steel bridge supports.

Since recycling steel has been going on for centuries, the steel industry has developed
advanced scrap utilization technologies that are very efficient and environment friendly due to
lower carbon emissions. Japan, which imports all of its iron ore and, at the same time, has one
of the largest volume of scrap steel because of its post-War industrialization, has become one of
the most advanced in scrap recycling technologies. Its Nippon Steel Hirohata Works pioneered
the development of modern scrap recycling technologies as early as 1993.

One of the revolutionary technologies used in scrap melting utilizes what is called the hot
heel scrap melting process. It is economical because it uses an existing blast oxygen furnace
(BOF) and therefore reduces equipment cost and retains the freedom of raw material and fuel
use, the process assures high productivity and high product quality, and it minimizes the total
production cost through the effective utilization of waste energy, such as recovering the off-gas
via the steel plants existing system; hence, minimal system remodelling expenditures would be
needed.

35
Sato, Hajime. 2009. The Iron and Steel Industry in Asia: Development and Restructuring. IDE Discussion Paper 210.2009.08.
Institute of Developing Economies. Tokyo: JETRO. p. 7.
36
Chandekar, D.A. Steelworld Research Team February 2010, Melting of steel scrap: A worldwide phenomenon. pp.44-48. From
http://www.steelworld.com/newsletter/feb10/feature0210.pdf

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Steel Products

Just a quick note on steel products which are the result of Stage 3 steel production.
Steel products are classified into Long or Flat products.
Long products

Long products are finished steel products that are produced by hot rolling or forging of
blooms or billets into usable shapes and sizes. These products are supplied in predetermined
lengths, except wire rods that are supplied in wound coils form. The different types of long
products are bars and rods in various cross-sections such as round, flat, square, or multi-sided
(hexagon or octagon) depending on special end-user requirements such as those used in
furniture-making.

Long products could also be finished using cold-worked twister and deformed (CTD) or
thermo-mechanically treated (TMT) into bars and rods. These are in the form of hot-rolled round
bars or rods with indentations or ribs normally supplied in straight length or in folded bundles
and are used directly in civil construction. This includes wire rods that are hot-rolled plain bars
or rods (no indentations) that are in coil form, normally used to produce steel wires and steel
bright bars.

Included among long products are angles, shapes and sections, channels, girders,
joists, I beams, and H beams used in civil or mechanical construction; rail sections obtained
from hot rolling of blooms or billets that are used in rail or tramways; wires that are produced by
cold drawing of wire rod through a die, and these are usually supplied in coils; bright bars that
are cold drawn, ground or peeled plain bars produced from hot-rolled plain bars or wire rods.
Flat Products

Flat products are finished steel that come in thin and flat form and are produced from
slabs or thin slabs in rolling mills with the use of flat rolls. These are supplied in hot-rolled, cold-
rolled or in coated condition depending on end-user requirements. Among the variety of flat
products are:

plates: thick flat finished product of width +500mm and Thickness > 5mm
supplied in cut or straight length, normally produced or supplied in as hot rolled condition
with or without specific heat treatments;
sheet : thin flat finished steel products, width +500mm and thickness <
5mm supplied in cut or straight length, produced or supplied in hot rolled/cold
rolled/coated condition and known as Hot Rolled (HR) Sheets or Cold Rolled (CR)
Sheets or Coated Sheets;
strips : hot/cold/coated flat rolled products, supplied in regularly wound
coils of super-imposed layers, and are known as HR or CR or Coated Strips. Depending
on the width, strips could be sub-classified as wide (> 600mm) or narrow (<600mm);
coated products: cold-rolled products coated with metals or organic
chemicals, such as galvanized plain or corrugated sheets for roofing, paneling or
automobile materials, or tinplate used for the manufacture of containers, and color-
coated products used for furniture, automobiles, and other uses.

This overview of the steel production process simplifies the determination of the typology
of steel production firms, the current status and short-, medium- and long-term prospects of
steel production technology in the Philippines and in Asia.

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Typology of Steel Production Firms

Steel production firms can be classified into three depending on which production stages
the firm undertakes. Firms that have all three stages are called integrated steelworks. Firms with
two of the three stages are semi-integrated steelworks. Firms with only Stage 3 of the steel
production process are called rolling mills. We now look at examples of each firm type and their
levels of technology.

Integrated Steelworks converts iron ore to crude steel which is rolled into finished
products. The first generation of integrated steelworks, which were founded in the late 19th
century, was located close to iron ore mines or coal mines. The second generation, built in the
1960s, were located near deep water ports, had more modern equipment, and were more
productive, achieving economies of scale from improved production processes.37

In the Philippines, the only firm that attempted to be of this type is that which used to be
the National Steel Corporation (NSC) in Iligan City, which was bought in 2004 by an Indian steel
company and renamed Global Steel Philippines, Inc. Currently, it only operates as a Stage 2
firm, whereby a Filipino industrialist had purchased a mini-BOF from China, with a 150,000
metric tonnes (MT) annual capacity, which is operated as a separate entity by the name
Treasure Steelworks, Inc.38

Among the top 25 integrated steelworks in the world in terms of crude steel production,
14 are in Asia, with China having six, Japan with three, South Korea and India with two each,
and Iran with one.39 There are also integrated steelworks in New Zealand and Australia, and
project studies are being made to establish integrated steelworks in Indonesia, Vietnam, and
Thailand. Since iron ore is expensive to transport, most integrated steelworks are close to the
sources of the ore and coking coal. South Korea and Japan seem to be the exception, since
these have to totally import their iron ore.

Semi-integrated Steelworks have Stages 2 (steel-making) and 3 (rolling processes)

under one roof. The so-called MiniMills fall under this firm typology, which involves making
crude steel out of steel scrap or DRI in EAFs, before rolling them into finished products. In some
cases, steel production and rolling are in separate facilities, which allows for greater operational
flexibility.

In the Philippines, the nine largest semi-integrated steelworks with a total steelmaking
capacity of 1.3 million MT annually account for some 800,000 MT of finished steel production. In
2012, the Philippines consumed 4 million MT of steel products, which shows that most of the
steel used in the country is imported. This level of steel consumption was almost the same in
1996, just before the Asian financial crisis.

Rolling Mills comprise the third type of steelworks engaged in pure Stage 3 production,
transforming billets and slabs into finished products through hot-rolling and/or cold-rolling,
providing surface treatment processes such as galvanizing, color-coating or tin-coating, or
working these into steel tubes and pipes. Most of the steel companies in the Philippines are of
this type. There are billet manufacturers which provide the raw material inputs to steel bar

37
Sato pp 7-9. This is a major resource for this section.
38
Interview with Steel Executive A on 11 July 2012.
39
http://www.steelads.com/info/largeststeel/TOP25_Worlds_Largest_Steel_Companies_2010_2011.html

Page 73 of 110
makers which eventually goes to construction. With the shutdown of Global Steel Philippines
Inc., the major flat steel rolling mill, the raw material inputs for galvanized roofing materials and
metal containers for food packaging are 100% imported. None of the steel producers in the
country could produce the more sophisticated, multiple-alloyed, high performance steel products
required by high value-added industries such as tool and die making, automotive and
semiconductor electronics that their steel raw materials need to be imported.

Steel Production Technology: A Tough Road to Nirvana

Much of the basic technology used in steel production is more than centuries-old, but
they require huge capital investments. For example, a bar mill that breaks even at 100,000 MT
per year requires at least $20 million of investments, while a hot strip mill with a minimum
efficient scale of 2 million MT would cost $400 million in investments. A 300,000 MT per year
EAF firm requires $100 million, while an integrated steelworks with a minimum efficient scale of
3 million MT per year costs $4 billion initial investment.

Below is the summary of the minimum efficient scale and initial investments required for
some firm types40:

Firm Type Economic Scale (MT/year) Initial Investment (US$)

Ore-based Integrated steelworks 3 million $4 billion

Hot strip mill 2 million $400 million

EAF (scrap) with thin-slab CC 1 million $300 million

EAF with bar mill 300,000 $100 million

Bar mill 100,000 $20 million

Additionally, investments in technology are determined according to market size, supply

and demand dynamics, economies of scale, and the legal frameworks for industrialization and in
the trading of raw materials and finished products. According to industry sources, the level of
production technology of Philippine steel producers is over two decades old, and that new
investments in process technologies are driven by short-term profit-seeking brought about by a
lack of long-term vision and consistent government policies.

The last two mini-mills were established in the 1996-1998, and no new mills for Stage 2
production have been opened since then. Most of the new steel mills (actually, using second
hand equipment from China) are for Stage 3 steel production.41

On top of the bureaucratic obstacles and inconsistencies, the industry finds a growing
problem with corruption in the Customs and Internal Revenue Bureaus that allow rampant
smuggling, both technical and direct, and tax evasion. Another result of the dominant mentality
is a fragmented iron and steel industry sector where information is not shared, and where the
different players find it difficult to work together for the good of the whole industry.

40
Sato pp 9-10
41
Interview with Steel Executive B on 16 July 2012.

Page 74 of 110
Stages of Technology: Costs and Benefits

Japan and South Korea are two of the largest steel-producing nations in Asia, and also
the most advanced. Having to import most of their iron ore for their industrialization in the 20th
century, the state of steel process technology is the most experienced and developed, because
of the need for economy, efficiency and profitability.

The two biggest cost items for a steel producing firm are raw materials (60-65%) and
power or fuel (25-30%), so most technologies focus on these two cost items, either by cutting
the cost of turning pig iron to semi-finished steel products for semi-integrated firms, and by
making the melting process more energy efficient for both semi-integrated and rolling firms.

Other areas for cutting down on costs with the use of technology is in the area of
reducing transportation costs by locating the steel mill close to ports or load-bearing road
networks, both for deliveries of raw materials and finished products, cutting down on labor costs
through improved production efficiency, reducing product rejects due to process inconsistencies
and compliance with environmental regulations, but while these have more serious impact, e.g.,
product failures when these do not meet government standards, or environmental pollution,
which lead to potentially high liabilities, the costs in technology investments or penalties
imposed are almost negligible, estimated by industry sources as being not more than 5% of total
cost.

Putting Money Where It Matters

Raw material prices fluctuate according to global demand. This applies to the prices of
Stage 1 steel production outputs, such as pig or sponge iron, the prices of inputs to Stage 2
production such as steel scrap, and the inputs to Stage 3 production such as blooms, billets and
slabs. Over the last ten years, the wild upsurge in the demand for steel products all over Asia,
driven by rapid economic growth in China, India and some parts of Southeast Asia (like Vietnam
and Indonesia), have driven the prices of raw materials in all its forms (pig/sponge iron, scrap,
and semi-finished steel products). Therefore, there is nothing much that technology can do to
bring down the cost of raw materials.

One problem, though, that the high cost of raw materials creates among local steel
producers is the low capacity utilization of many steel mills. This is brought about not only by the
high cost of raw materials, but also the high potential profits a businessman could earn from
smuggling of imported steel products (for Stages 2 and 3), which makes it uneconomical for
local producers to supply more than what they could sell. Although yearly, more than 50% of
steel used in the country is imported, the fact that a big portion of it is smuggled or misdeclared
crowds out the potential market demand that local producers could supply and squeezes the
local suppliers profit margins. Rather than invest in technology to expand production, producers
instead cope with the lower margins by operating at a lower but economically sustainable
capacity.

What steel companies are able to do, however, is to make the production processing of
raw materials more efficient, so that product standards are met and wastage is minimized. Most
steel companies in the Philippines have invested in computer-controlled production systems
using European technology (e.g., Siemens) with an estimated 4-year payback period. Industry

Page 75 of 110
sources admit that they readily invest in technologies that assure or improve product quality and
maximize output, for the simple reason that they can easily calculate the financial returns.

Different steel companies use different technologies, but the mini-mill representatives
admit that their 15-year old technology is still economical and give guaranteed financial returns.
Most of these technologies were bought from Chinese suppliers and easily retrofitted to the
existing, older Stages 2 and 3 steel mills in the Philippines.

Another technology-based strategy used by steel companies to cut on raw material

waste while meeting the market demand is to adjust their product dimensions to their end-user
requirements. For example, since steel bars are normally sold in 6-meter lengths, some steel
companies have purchased cooling beds up to 12 meters in length to meet varying length
orders, ranging from 7.5 to 9 meters. This helps to lock in local demand to local supply, so that
construction companies need not look for foreign suppliers to meet special requirements.
Depending on the capacity, cooling beds cost from $150,000 to $160,000 and these costs can
be recovered in two to three years.

Compared to other steel producers (mini-mills and rolling mills) of similar capacities
(between 100,000 and 300,000 MT/year capacity) in Southeast Asia, Philippine producers are
able to price their products competitively. Note, however, that the primary competition of
domestic steel producers are the smugglers who, with their lower or zero tariffs and taxes are
able to price their products to be competitive with imported products, while squeezing the
margins of legitimate steel producers.

Power or energy make up the second biggest cost item in steel production, accounting
for as much as 35% of total cost. Electrical power is used to melt the raw materials in the EAF,
and steel producers look for ways to cut down on power usage, especially since power rates in
the Philippines are among the highest in Southeast Asia.

Local steel producers are able to make do with off-the-shelf technology from China that
are easy to install and that assure considerable savings in energy expenses. Among the
common ones are the installation of capacitors, which stabilize the power usage caused by the
voltage fluctuations in EAFs or EIFs, resulting in 3-phase imbalances in the power grid, negative
sequence current, high order harmonics, severe voltage distortion, and low power factor. These
effects result in higher power usage readings. A good capacitor system with harmonic filters
costs between $15,000-25,000 and have a payback period of less than a year in any steel plant
at any given output, even below 300,000 MT/year.

Installing a recuperator, a heat recovery system that reuses the heat from exhaust gases
to raise the temperature of the air in the furnace, resulting in lower energy costs. A recuperator
system costs an average of $250,000 and is economical for production capacities of 300,000
MT/year, which is the average capacity of mini-mills in the country. This investment has a
reasonable payback period of 2-4 years.

Another technology where some mini-mills are willing to invest is in scrap preheating,
which raises the temperature of the scrap metal with the use of specially-designed EOF that use
the heat of exhaust gases from the smelting process. A Siemens model costs P20 to 30 million,
but this would give decent financial returns if the furnace capacity is greater than 500,000
MT/year. Although some mini-mills want to install furnaces that could meet this capacity, not
one is willing to do so for the reasons already mentioned, i.e., it would not be competitive for
them because of smuggling and other forms of government corruption.

Page 76 of 110
 The optimal EAF output for a steel plant is in the range of 300,000 to 500,000 MT/year.
The three biggest mini-mills, Steel Asia, Capasco and Treasure Steelworks, have an average
capacity of 300,000 MT/year. There are two mini-mills in Pampanga, each with an EAF capable
of processing 150,000 MT/year, and 3-4 smaller ones, each with a capacity of less than 100,000
MT/year. Of the approximately 1.3 million MT/year of crude steel, an estimated 1 million
MT/year is sold as iron and steel products. Given that the estimated steel consumption in the
Philippines in 2010 was 4 million MT/year, it can be estimated that at least 3 million MT/year
were imported.

In 2011, Treasure Steelworks installed its first (of two planned) mini-blast furnace with a
molten steel capacity of 150,000 MT/year, part of a plan to ramp up Stage 1 production to
700,000 MT/year.42 This is part of a plan to build the only integrated steel mill in the Philippines
ever since Global Steel Philippines, the former National Steel Corporation, stopped operating in
2010.

Other technology investments in the steel industry have considerably reduced wastage
from 4% more than ten years ago to an acceptable 1% of total output (at P33,000 per MT and
annual output of 300,000 MT/year, the cost savings go as high as P300 million yearly). Every
savings equivalent to 1% of total output would be worth P100 million yearly at current prices for
a 300,000 MT annual capacity. This explains why local companies do not need incentives to
invest in technology that would improve productivity and energy efficiency.

Environmental considerations, however, such as cleaning of furnace emissions, or

recycling of waste products such as slag or mill scale, have their economic benefits as well, not
only in terms of acceptability by the community and less political pressure from NGOs and
politicians. Slag can be sold as an asphalt additive, while mill scale can be fed back into the
EAF and mixed with the raw materials or scrap for melting. Computerized systems to make the
furnace air mixture more optimal for sustaining high temperatures also give the added benefit of
minimizing CO2 emissions and cleaning up the smoke. This is why domestic steel companies
are willing to invest, even without incentives, to comply with environmental safety standards.

Medium- and Long-Term Outlook

According to the OECD 2010 Steelmaking Report43, Asia would grow its steelmaking
installed capacity by 147.5 million MT/year to 2012, with China accounting for 61% of total
capacity and India accounting for 28%. From 2003 to 2012, the Philippines grew its capacity by
500,000 MT, growing from 1.7 million MT in 2002 to 2.2 million MT in 2012 (projected). In
contrast, our neighbors will grow from a larger base to at least, in the case of Vietnam and
Indonesia, four times our capacity. Projected installed capacities by 2012 are as follows (in
million metric tons per year):

Steelmaking Capacity Crude Steel Production

2002 2012 2003 2009
China 197 815 222 567
India 40 114 32 60
Malaysia 8 11 4 6
Indonesia 7.8 9.2 2 3.5

42
Developments in Steelmaking Capacity of Non-OECD Economies 2010 , OECD Publishing, Apr 28, 2011, p. 38.
43
OECD (28 April 2011). Developments in Steelmaking Capacity of Non-OECD Economies 2010, p. 49.

Page 77 of 110
Philippines 1.7 2.2 0.6 0.7
Vietnam 1.7 9.3 0.5 2
Thailand 7.4 9.3 3.6 6
Source: OECD 2011, pp. 48-49

The above table indicates that countries which grew in capacity and actual production
between 2002 and 2012 invested in newer technology. According to the OECD report, these
Asian countries installed blast furnaces, EAFs, EOFs, EIFs, and more up-to-date for a wide
variety of production processes such as continuous casting, galvanizing, etc. China alone
starting operating at least seven new integrated steel mills between 2002 and 2009, and was in
the process of constructing six more greenfield integrated steel mills all over the country.

Among the technology improvements that the Philippines steel companies could
consider for their future investments to attain financial sustainability of their businesses in the
medium- to long-term, based on past technological innovations and investments that have
proven to improve competitiveness in steel production, are the following44:

1. Introduction of control systems for production processes and the automation of their
operations;
2. Improving air mixture to improve combustion properties in the furnace;
3. Use of alternative energy sources for furnaces and ovens;
4. Use of economical, though lower quality, raw materials such as scrap and waste steel;
5. Labor saving (operation optimization of machines and equipment, continuous unloaders,
automation of oven operation and reduction of the work period of furnace relining, etc.);
6. Extension of equipment service life (furnaces and ovens) through periodic maintenance
periods;
7. Environmental conservation (dust treatment using a rotary-hearth reduction furnace
(RHF), circulation of exhaust gas, etc.);
8. Innovative processes (e.g., production technologies of substitutional iron sources, the
Smelting-reduction Process (DIOS), next-generation ovens (SCOPE 21), etc.); and,
9. Visualization of phenomena within the furnace (development of the visual evaluation and
numerical analysis system of a furnace (Venus), improvement in the prediction accuracy
of a furnace total model, etc.).

Some steel companies are already investing in some of these technologies, encouraged
by the financial viability of those investments. There is no need for investment incentives. The
best the government could do is to try to level the playing field by taking away the unfair
economic advantage of smugglers by cleaning up the Bureaus of Customs and Internal
Revenue.

Checkpoint: 2003 Roadmap and Reality

The key technological recommendations of the 2003 industry roadmap were related to
the rehabilitation of NSC as an integrated steel mill and the construction of a mini-integrated
steel plant based on DRI or Corex ironmaking technology.45 The key objective, then as now,

44
Interview with Steel Executive C on 18 July 2012; Naito, Maasaki. Development of Ironmaking Technology, Nippon Steel
Technical Report, no. 94, July 2006, p. 3-4.
45
Arizabal, A.V. (ed.), 2003. Roadmap for the Technological Upgrading of the Philippine Iron and Steel Industry for Global
Competitiveness. DOST-PCIERD-MIRDC-DTI, Manila.

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was for the country to supply Stage 2 products from raw material inputs in the form of iron ore,
pig iron, DRI or scrap.

To-date, NSC (as Global Steel) has ceased operations again (since 2010) after its
attempted rehabilitation in 2004.

One important technological upgrading recommendation was the purchase of more

efficient furnaces. Since 2003, there have been no new significant investments, unlike in other
SEA countries that have installed state-of-the-art energy-efficient furnace alternatives such as
EOF, EIF, etc. The closest the country has fulfilled the 2003 plan is Treasure Steelworks
purchase of a mini-Blast Furnace that was installed beside NSC in Iligan. Other than that, most
investments involved the production efficiency measures mentioned above.

Another recommendation in the 2003 industry roadmap was for companies to invest in
scrap handling and preparation equipment to size scrap charges and minimize repeated
charging. As of 2012, industry insiders who were interviewed claim that such an investment
would be too expensive for local steel producers at this point.46

A key recommendation also was to reduce the cost of tinplate for canning use by down-
gaging and expanding the production of double-reduced blackplate products, but this also
depended on the continuous operation of NSC, so nothing was done on this.

In summary, much of the technological recommendations of the 2003 roadmap had to

do with the rehabilitation and upgrading of NSC as an upstream raw material producer of slabs,
billets and blooms. The manner by which NSC was managed until it ceased operations in 2010
precluded any possibility that the key technological recommendations of the 2003 roadmap
could be implemented by the steel industry players.

In the meantime, even though political instability, government policy inconsistencies and
other business challenges are present in the other countries around the Philippines, the level of
private sector investments in those countries allowed the start-up of steelworks that utilize more
modern technologies compared to ours.

We just have to act catch-up again once we get our acts together.

46
Interview with Steel Executive D on 20 July 2012.

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 ANNEX B:

PRODUCTION LINKAGES, MULTIPLIERS, AND MULTIPLIER EFFECTS OF THE IRON AND STEEL
INDUSTRY

1. Introduction

The iron and steel industry is widely considered one of the catalysts of industrialization
and a major backbone of all industries in the economy. In fact, industrialization in many
countries is strategically linked with the growth and development of the iron and steel industry.

Sustained long-run economic growth will require, among others, growth in public
spending for infrastructure and private construction spending. Greater public spending on
infrastructure and private construction spending will undoubtedly boost demand for iron and
steel products. In the Philippines, the surge of public-private partnerships in infrastructure
development, expansion of the real estate industry, growth of the housing industry, and the
emergence of the shipbuilding industry will intensify demand for iron and steel products.

To meet demand for its products, the iron and steel industry relies on other industries for
production inputs and on households for labor inputs. The web of production interrelationships
between the iron and steel industry and the rest of the economy intensifies production linkages
and produces multiplier effects that help expand output, household income, and employment.

The objectives of this study are as follows:

1. To describe and analyze the production and output distribution structures of the iron and
steel industry
2. To quantify the total output multiplier and multiplier effects of the iron and steel industry
on the economy including the output multiplier effects induced by both production and
consumption activities
3. To quantify the total household income multiplier and multiplier effect of the iron and
steel industry on the economy
4. To derive the total employment multiplier effect of the iron and steel industry on the
economy from the industrys total household income multiplier effect
5. To measure the strength and dispersion of the production linkages of the iron and steel
industry

The iron and steel industry is defined in this study in terms of the activities of iron and
steel foundries, which generally involve the manufacture and casting of iron and steel. More
specifically, these activities include the following: casting of semi-finished iron products; casting
of gray iron castings; casting of spheroidal graphite iron castings; casting of malleable cast-iron
products; manufacture of tubes, pipes, hollow profiles; manufacture of tube or pipe fittings of
cast iron; casting of semi-finished steel products; casting of steel castings; manufacture of
seamless tubes and pipes by centrifugal casting; and manufacture of tubes or pipe fittings of
cast steel.47

47
This is based on the Philippine Standard Industry Classification. The Department of Trade and Industry and Board of Investments
define the iron and steel industry in terms of three sub-sectors: primary, intermediate, and downstream. The primary sub-sector
includes iron making or extraction of iron from iron ore, steel making or refinement of iron or scrap into steel, and bullet, ingot, and
slab casting. The intermediate sub-sector includes processing of semi-finished iron and steel into finished products as well as
rolling, forming, drawing, and finishing. The downstream sub-sector includes users of iron and steel products such as construction,

Page 80 of 110
 In the next section, the methodology used in the analysis is briefly described. The third
section analyzes the production and distribution structures of the iron and steel industry. The
fourth and fifth sections quantify and explain the total output and total household income
multipliers and multiplier effects of the iron and steel industry. The total employment multiplier
effect of the iron and steel industry is quantified and discussed in the sixth section. Finally, the
last section analyzes and discusses the strength and dispersion of the production linkages of
the iron and steel industry.

2. Methodology

The study uses input-output analysis to quantify the multiplier effects of the iron and
steel industry and to measure the strength and diffusion of the industrys production linkages.
The 2000 Philippine input-output table was projected to 2008 using data from the 2008 Annual
Survey of Philippine Business and Industry. The RAS technique was used to arrive at the non-
survey estimate of the 2008 Philippine input-output table.48

The semi-closed input-output model is used to derive the total output, total household
income, and total employment multipliers of the iron and steel industry.49 This model includes
households in the analysis of the production interrelationships of the iron and steel industry and
its multiplier effects.50 The same model is used to measure the strength and dispersion of the
production linkages of the iron and steel industries. The model is expressed as follows:

X = ( I )-1 Y

where X is output, Y is final demand, I is the identity matrix, is the augmented technical
coefficient matrix, and ( I )-1 is the semi-closed global Leontief inverse matrix that captures
direct, indirect, and induced multiplier effects.51

Since the iron and steel industry is import-dependent, the semi-closed domestic Leontief
inverse matrix was derived using the augmented technical coefficient matrix and rates of self-
sufficiency derived from the input-output table.52 In this study, both global and domestic Leontief

automotive and machinery, and engineering and metalworking sectors. In this study, only the primary and intermediate sub-sectors
of the iron and steel industry are directly taken into account.
48
A software program produced by the DIA Agency, Incorporated processed the data and projected the 2000 Philippine input-output
table to 2008 using the RAS technique. The non-survey estimate of the 2008 input-output table has 16 industries and one
household sector.
49
The total employment multiplier is derived using the total household income multiplier and average annual compensation data.
50
The open input-output model does not include households in the analysis of production interrelationships and their multiplier
effects on the economy. Simple multipliers are derived from the open input-output model while total multipliers are derived from the
semi-closed input-output model.
51
Final demand refers to consumption spending, investment spending, government spending, export demand, and import demand.
The augmented technical coefficient matrix includes an additional row for household input coefficients and an additional column for
household spending coefficients. The household spending coefficients are based on the compensation of employees data found in
the input-output table. The household spending coefficients are based on personal consumption expenditures data found in the
input-output table. The inverse matrix is a global inverse matrix because it incorporates both domestically-produced and imported
inputs.
52
The rates of self-sufficiency were computed using the official 2000 Philippine input-output table since the non-survey estimate of
the 2008 Philippine input-output table does not include the data required for computing the rate of self-sufficiency. The global
Leontief inverse matrix takes accounts for both domestically-produced and imported inputs while the domestic Leontief inverse
matrix accounts for domestically-produced inputs only.

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inverse matrixes are analyzed to contrast the potential and actual multipliers of the iron and
steel industry.53

The total output multiplier is the sum of the column elements of the semi-closed Leontief
inverse matrix. It embodies the direct, indirect, and induced effects of a change in final demand
on the output of all industries in the economy. The total household income multiplier is the last
element in each column of the semi-closed Leontief inverse matrix. It contains the direct,
indirect, and induced effects of a change in final demand on household income.

The total household income multiplier effect is divided by the annual average
compensation to get the employment multiplier effect of the iron and steel industry. Hence, the
employment multiplier effect is not directly derived from the semi-closed Leontief inverse matrix.
Backward and forward linkage indexes are derived from the semi-closed Leontief
inverse matrix in order to measure the strength of the production linkages of the iron and steel
industry. The backward linkage index (power of influence) is the ratio of the total output
multiplier and the average output multiplier.54 The forward linkage index (sensitivity of
dispersion) is the ratio of the sum of the row elements of the semi-closed Leontief inverse matrix
and the average output multiplier. An index that is greater than 1 indicates strong linkages while
an index less than 1 indicates weak linkages.

The dispersion of the backward and forward linkages of the iron and steel industry is
measured using the coefficient of variation. The coefficient of variation is the square root of the
ratio of the standard deviation of the column (row) elements of the semi-closed Leontief inverse
matrix corresponding to the industry and the mean of the same column (row) elements. If the
coefficient of variation of an industry is greater than the average coefficient of variation,
production linkages are deemed less evenly dispersed. If the coefficient of variation of an
industry is less than the average coefficient of variation, production linkages are deemed more
evenly dispersed.

3. Production and Output Distribution Structures of the Iron and Steel Industry

A. Production Structure of the Iron and Steel Industry

The production structure of the iron and steel industry refers to the composition of the
production inputs of the industry. In general, production inputs can be divided into intermediate
inputs or producer goods and primary inputs. Intermediate inputs or producer goods are goods
used to produce other goods. For example, iron and steel are intermediate inputs of the
construction industry because the construction industry uses iron and steel to build houses and
buildings. Primary inputs can be divided into two, namely labor inputs and capital (physical and
financial) inputs.

Intermediate inputs account for about 66 percent of the production structure of the iron and steel
industry.55 The major intermediate inputs of the iron and steel industry are as follows: 56

53
In this study, potential multipliers assume that all production inputs, even those that are imported, are domestically produced while
actual multipliers account for domestically-produced inputs only.
54
The average output multiplier is the sum of the total output multipliers of all industries divided by the number of industries.
55
This is based on both the official 2000 Philippine input-output table and the non-survey estimate of the 2008 Philippine input-
output table.
56
The list comprises about 79 percent of the total value of the intermediate inputs of the iron and steel industry as shown in the
input-output table.

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 1. Blast furnace, steel making furnace, steel works, and rolling mills
2. Electricity
3. Wholesale and Retail Trade
4. Manufacture of Non-Metallic Mineral Products (not elsewhere classified)57
5. Petroleum Refineries58

About 25.2 percent of the production structure of the iron and steel industry can be
traced to financial capital, 6.3 percent to labor inputs, two percent to physical capital inputs, and
about 0.5 percent to other primary inputs. In sum, about 34 percent of the production structure
of the iron and steel industry can be attributed to primary inputs.

The production structure of the iron and steel industry is skewed towards intermediate
inputs since at least two-thirds of the total inputs of the industry can be traced to intermediate
inputs. This implies that changes in the iron and steel industry brought about by government
policy or external factors will affect producers of intermediate inputs more than suppliers of labor
and capital inputs. Also, this implies that the iron and steel industry can generate more
backward linkages since its demand for intermediate inputs is greater than its demand for
primary inputs.

B. Output Distribution Structure

The output distribution structure of the iron and steel industry refers to the industry and
final demand destinations of the industrys output. The industry destinations of output refer to
industries that use the output of the iron and steel industry as production input. The final
demand destinations of output pertain to the use of the output of the iron and steel industry by
households, firms, government, and even exporters.59

Approximately 88 percent of the output of the iron and steel industry is allocated to
intermediate demand.60 This means that most of the output of the iron and steel industry is used
as production input by other industries in the economy. For example, 17.9 percent of the output
of the iron and steel industry that is allocated to intermediate demand goes to the manufacture
of fabricated metal products while 17.3 percent is distributed to the manufacture, assembly, and
repair of office, computing, and accounting machines. The major industry destinations of the
iron and steel industry in descending order are as follows:61

1. Manufacture of fabricated metal products except machinery and equipment (17.9%)

2. Manufacture, assembly, and repair of office, computing, and accounting machines
(17.3%)

57
This includes intermediate and final products from mined or quarried non-metallic minerals such as sand, gravel, stone, or clay.
58
In the input-output table, this includes LPG
59
In the input-output framework, the final demand destinations of an industry include personal consumption expenditures (final
demand of households), government consumption expenditures (final demand of government), gross fixed capital formation
(investment spending), changes in stocks (investment spending), exports, and imports.
60
This was derived from the input-output table as the share of total intermediate demand to total domestic output plus exports.
Total domestic output is the sum of total intermediate demand, personal consumption expenditures (final demand of households),
government consumption expenditures (final demand of government), gross fixed capital formation (investment spending), and
changes in stocks (investment spending).
61
The numbers for each industry/sector is the share of the industry/sector in total intermediate demand for the products of the iron
and steel industry.

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 3. Manufacture of engines and turbines, except for transport equipment and special
industrial machinery and equipment (16.6%)
4. Construction (12.5%)
5. Manufacture of motor vehicle parts and accessories (6.7%)
6. Manufacture of other fabricated wire and cable products except insulated wire (6.6%0
7. Cutlery, hand tools, and general hardware (4.4%)
8. Blast furnace and steel making furnace, steel mills and rolling mills (3.8%)
9. Manufacture of metal containers (3.3%)

A striking feature of the distribution structure of the iron and steel industry is its heavy
dependence on imports. Based on the input-output table, the iron and steel industry is a net
importer since its imports far outweigh its exports. Imports of the iron and steel industry are
about nine times greater than its exports. Also, imports of the iron and steel industry are around
97 percent of the total output allocated to intermediate demand or distributed to industries. As
computed from data contained in the national input-output table, the rate of self-sufficiency of
the iron and steel industry is 46 percent in 2000, down from 55 percent in 1994.62

4. Total Output Multiplier of the Iron and Steel Industry

A. Total Output Multiplier and Multiplier Effect

1. Global Total Output Multiplier and Multiplier Effect

The global total output multiplier represents the potential output multiplier if all the
production inputs of an industry are domestically produced. As seen in Table 1, the global total
output multiplier of the iron and steel industry is 3.5. This means that a one-peso increase in
investment spending for the iron and steel industry generates 3.5 pesos of additional output in
the economy.63 Hence, a 100 million peso investment in the iron and steel industry results in
350 million pesos of additional output in the economy. Aside from the iron and steel industry
itself, the other industries or sectors that are expected to benefit most from the output multiplier
effect of the iron and steel industry are as follows:64

1. Blast furnace and steel making furnace, steel works and rolling mills
2. Households
3. Electricity
4. Wholesale and retail trade
5. Petroleum refineries including LPG
6. Crude oil and natural gas
7. Banking
8. Manufacture of other non-metallic mineral products, not elsewhere classified
9. Manufacture of plastic furniture, plastic footwear, and other fabricated plastic
products

62
In the input-output framework, the rate of self-sufficiency is derived using the import coefficient. The import coefficient is the ratio
of total Imports to the sum to total intermediate demand, personal consumption expenditures(final demand of households),
government consumption expenditures (final demand of government), gross fixed capital formation (investment spending), and
changes in stocks (investment spending).
63
Note that this could be a change in any of the final demand components such as consumption spending, government spending,
export demand, and import demand. In this study, a change in investment spending was chosen as the impact variable. Regardless
of the impact variable used, the total output multiplier effect will remain the same because the same global total output multiplier is
used.
64
These industries/sectors are arranged in descending order based on individual output multipliers.

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 10. Ownership of dwellings

Table 1. Global Total Output Multiplier and Output Multiplier Effect of the Iron and Steel
Industry

A. Global Total Output Multiplier 3.50

B. Assumed Increase in Investment Spending (in pesos) 100,000,000
C. Total Multiplier Effect on the Economy ( A x B ) (in pesos) 350,000,000
D. Industries/Sectors that will benefit most (in pesos)
1. Blast furnace and steel making furnace 28,331,000
2. Households 28,113,000
3. Electricity 23,338,000
4. Wholesale and Retail Trade 18,511,000
5. Petroleum refineries including LPG 11,972,000
6. Crude Oil and Natural Gas 8,289,000
7. Banking 4,789,000
8. Manufacture of other non-metallic products, nec 4,458,000
9. Manufacture of plastic furniture, plastic footwear, etc 3,640,000
10. Ownership of Dwellings 2,251,000

Note: The global total output multiplier is derived from the semi-closed global Leontief inverse
matrix, which was based on a non-survey estimate of the 2008 Philippine input-output table. It
represents the additional output in the economy generated by a change in final demand. If the
assumed change in investment spending is multiplied by the global total output multiplier, one
gets the global total output multiplier effect on the economy. The output multiplier effects on
individual industries or sectors were derived using the column elements of the semi-closed
global Leontief inverse matrix corresponding to the iron and steel industry. The impact variable
(change in investment spending) was arbitrarily chosen. The impact variable could be a change
in consumption spending, government spending, export demand, and import demand. The
abbreviation nec stands for not elsewhere classified

2. Domestic Total Output Multiplier and Multiplier Effect

The domestic total output multiplier takes into account only the domestically-produced
production inputs of the iron and steel industry. The domestic total output multiplier of the iron
and steel industry is 2.7, which means that a one-peso increase in investment spending for the
iron and steel industry generates 2.7 pesos of additional domestically-produced output in the
economy (see Table 2). A 100 million peso investment in the iron and steel industry results in
270 million pesos of additional domestically-produced output in the economy. The industries or
sectors that are expected to benefit most from the output multiplier effect of the iron and steel
industry are as follows:65

1. Blast furnace and steel making furnace, steel works and rolling mills
2. Electricity
3. Households
4. Wholesale and retail trade
5. Petroleum refineries including LPG
6. Manufacture of other non-metallic mineral products, not elsewhere classified

65
These industries/sectors are arranged in descending order based on individual output multipliers.

Page 85 of 110
 7. Telecommunications services
8. Banking
9. Real Estate Activities
10. Manufacture of asphalt, lubricants, and miscellaneous products of petroleum and
coal

Table 2. Domestic Total Output Multiplier and Output Multiplier Effect of the Iron and
Steel Industry

A. Domestic Total Output Multiplier 2.70

B. Assumed Increase in Investment Spending (in pesos) 100,000,000
C. Total Multiplier Effect on the Economy ( A x B ) (in pesos) 270,000,000
D. Industries/Sectors that will benefit most (in pesos)
1. Blast furnace and steel making furnace 24,563,000
2. Electricity 20,909,000
3. Households 20,754,000
4. Wholesale and Retail Trade 11,615,000
5. Petroleum refineries including LPG 7,595,000
6. Manufacture of other non-metallic products, nec 4,020,000
7. Telecommunications services 3,674,000
8. Banking 2,606,000
9. Real estate activities 2,096,000
10. Manufacture of asphalt, lubricants, and miscellaneous products of
petroleum and coal 1,782,000
____________________________________________________________________________
__
Note: The domestic total output multiplier is derived from the semi-closed domestic Leontief
inverse matrix, which was based on a non-survey estimate of the 2008 Philippine input-output
table. It represents the additional domestic output in the economy generated by a change in
final demand. If the assumed change in investment spending is multiplied by the domestic total
output multiplier, one gets the total multiplier effect on domestic production in economy. The
output multiplier effects on individual industries or sectors were derived using the column
elements of the semi-closed domestic Leontief inverse matrix corresponding to the iron and
steel industry. The impact variable (change in investment spending) was arbitrarily chosen. The
impact variable could be a change in consumption spending, government spending, export
demand, and import demand.

3. Comparison of Total Output Multipliers

a) Domestic

The total output multipliers of all industries in the economy can be ranked based on their
magnitude or size. The ranking of domestic total output multipliers are ranked to compare the
absolute magnitude of domestic output multipliers. The domestic total output multiplier of the
iron and steel industry is the sixth highest out of16 industries in the non-survey estimate of the
2008 input-output table (see Table 3).

Table 3. Ranking of Domestic Total Output Multipliers

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 17. Manufacturing 3.4
18. Fishing 3.3
19. Agriculture and Forestry 3.2
20. Electricity, Gas, and Water 3.1
21. Hotels and Restaurants 2.75
22. Iron and Steel 2.7
23. Construction 2.63
24. Private Health Services 2.24
25. Transportation, Storage, and Communication 2.2
26. Financial Intermediation 1.95
27. Wholesale and Retail Trade 1.87
28. Other Community, Social, and Personal Services 1.81
29. Real Estate 1.66
30. Nickel Mining 1.26
31. Private Education Services 1.2
32. Mining and Quarrying 1.14
____________________________________________________________________________
__
Note: The domestic total output multiplier is derived from the semi-closed domestic Leontief
inverse matrix, which was based on a non-survey estimate of the 2008 Philippine input-output
table. The table has 16 industries or sectors and 1 household sector. The household sector was
excluded in the ranking. The domestic total output multiplier represents the additional domestic
output in the economy generated by a change in final demand. If the assumed change in
investment spending is multiplied by the domestic total output multiplier, one gets the total
multiplier effect on domestic production in economy. The output multipliers were derived using
the column elements of the semi-closed domestic Leontief inverse matrix.

b) International

To facilitate international comparison of output multipliers, the simple output multiplier of

the iron and steel industry was derived.66 Based on the non-survey estimate of the 2008
Philippine input-output table, the simple output multiplier of the iron and steel industry is 2.08.
This is higher compared to Algeria (1.76) but lower compared to the USA (2.7), Germany (2.7),
and India (2.4)67

B. Initial, Production-induced, and Consumption-induced Output Multipliers and

Multiplier Effects

The total output multiplier of the iron and industry can be decomposed into three
separate multipliers, namely initial output multiplier, production-induced output multiplier,
consumption-induced output multiplier effect. The initial output multiplier corresponds to the

66
The simple output multiplier is based on an open Leontief inverse matrix, which is an inverse matrix that does not take into
account the influence of households on economic activity. The simple output multiplier was used in the international comparison
because studies done for other countries report this type of multiplier instead of the total output multiplier.
67
For the simple output multiplier for Algeria, see MK Eddine (2009), A Multiliplier and Linkage Analysis: Case of Algeria. For the
simple output multiplier of the USA, see Timothy Considine (2011), Economic Impacts of the American Steel Industry. For the
simple output multiplier of Germany, see Steel Times International (March 8, 2012), Multiplier Effect of Steel Production. For the
simple output multiplier of India, see Joyashree Roy and Ranjana Mukhopadhyay (1997), Energy and Infrastructure Needs in India:
An Input-Output Analysis. Note that the multipliers for the USA and Germany are for the steel industry while the multiplier for India is
for the basic metal industries. The multiplier for Algeria is for the iron and steel industry.

Page 87 of 110
initial change in spending for the iron and steel industry. It is always equal to 1. The
production-induced output multiplier effect refers to the additional output generated by the
production of inputs needed by the iron and steel industry. It can be decomposed into two
effects: direct production-induced output multiplier effect and indirect production-induced output
multiplier effect. Meanwhile, the consumption-induced output multiplier effect refers to the
additional output generated by the increase in household income and consumption spending
due to greater production in the iron and steel industry.

1. Global

As indicated in Table 4, the global production-induced output multiplier of the iron and
steel industry is 1.6. This means that a one-peso increase in investment spending for the iron
and steel industry results in 1.6 pesos of additional output due to the production of inputs
needed by the iron and steel industry and related industries. The direct production-induced
output multiplier of the iron and steel industry is 0.82, which means that a one-peso increase in
investment spending for the iron and steel industry directly generates 0.82 centavos of
additional output due to the production of inputs needed by the iron and steel industry. The
indirect production-induced output multiplier of the iron and steel industry is 0.78, which
indicates that a one-peso increase in investment spending for the iron and steel industry
indirectly generates 0.78 centavos of additional output due to the production of inputs needed
by related industries that supply the production inputs of the iron and steel industry.

The consumption-induced output multiplier of the iron and steel industry is 0.9. This
means that a one-peso increase in investment spending for the iron and steel industry
generates 0.9 centavos of additional output due to higher household income and consumption
spending brought about by greater production in the iron and steel industry.

Table 4. Initial, Production-induced, and Consumption-induced Global Output Multiplier

Effects of the Iron and Steel Industry

Assumed Increase Output

In Investment Spending Multiplier
(in pesos) Effect
(in pesos)

Global Total Output Multiplier 3.50 100,000,000 350,000,000

Initial Output Multiplier 1.00 100,000,000 100,000,000

Production-induced Multiplier 1.60 100,000,000 160,000,000

Direct 0.82 100,000,000 82,000,000
Indirect 0.78 100,000,000 78,000,000

Consumption-induced Multiplier 0.90 100,000,000 90,000,000

Note: The global total output multiplier is the sum of the initial output multiplier, production-
induced output multiplier, and consumption-induced output multiplier. Hence, the global total
output multiplier effect is the sum of the initial output multiplier effect, production-induced output
multiplier effect, and consumption-induced output multiplier effect. The production-induced
multiplier is the sum of the direct and indirect production-induced output multipliers. The output

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multiplier effect is derived by multiplying the assumed increased in investment spending by the
corresponding output multiplier.

2. Domestic

The domestic production-induced output multiplier of the iron and steel industry is 1.08
(see Table 5). This means that a one-peso increase in investment spending for the iron and
steel industry results in 1.08 pesos of additional output due to the production of inputs needed
by the iron and steel industry and related industries. The direct production-induced output
multiplier of the iron and steel industry is 0.72, which means that a one-peso increase in
investment spending for the iron and steel industry directly generates 0.72 centavos of
additional output due to the production of inputs needed by the iron and steel industry. The
indirect production-induced output multiplier of the iron and steel industry is 0.36, which
indicates that a one-peso increase in investment spending for the iron and steel industry
indirectly generates 0.36 centavos of additional output due to the production of inputs needed
by related industries that supply the production inputs of the iron and steel industry.

The consumption-induced output multiplier of the iron and steel industry is 0.62. This
means that a one-peso increase in investment spending for the iron and steel industry
generates 0.62 centavos of additional output due to higher household income and consumption
spending brought about by greater production in the iron and steel industry.

Table 5. Initial, Production-induced, and Consumption-induced Domestic Output

Multiplier Effects of the Iron and Steel Industry

Assumed Increase Output

In Investment Spending Multiplier
(in pesos) Effect
(in pesos)

Domestic Total Output Multiplier 2.70 100,000,000 270,000,000

Initial Output Multiplier 1.00 100,000,000 100,000,000

Production-induced Multiplier 1.08 100,000,000 108,000,000

Direct 0.72 100,000,000 72,000,000
Indirect 0.36 100,000,000 36,000,000

Consumption-induced Multiplier 0.62 100,000,000 62,000,000

Note: The domestic total output multiplier is the sum of the initial output multiplier, production-
induced output multiplier, and consumption-induced output multiplier. Hence, the domestic total
output multiplier effect is the sum of the initial output multiplier effect, production-induced output
multiplier effect, and consumption-induced output multiplier effect. The production-induced
multiplier is the sum of the direct and indirect production-induced output multipliers. The output
multiplier effect is derived by multiplying the assumed increased in investment spending by the
corresponding output multiplier.

5. Total Household Income Multipliers of the Iron and steel industry

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 A. Global

The global total household income multiplier of the iron and steel industry is 0.32 (see
Table 6). This means that a one peso change in investment spending in the iron and steel
industry results in 0.32 centavos of additional household income in the economy. Hence, a 100
million peso investment in the iron and steel industry is estimated to generate 32 million pesos
of additional household income in the economy.

Table 6. Global Total Household Income Multiplier and Multiplier Effect of the Iron and
Steel Industry

Total Household Assumed Increase in Multiplier Effect on

Income Multiplier Investment Spending Household Income
(Global) (in pesos) (in pesos)

Iron and Steel 0.32 100,000,000 32,000,000

Note: The global total household income multiplier is the last element in each column of the
semi-closed global Leontief inverse matrix. It represents the additional household income
generated by a change in consumption spending, investment spending, exports, and imports.
The impact variable (change in investment spending) was arbitrarily chosen. The impact
variable could be a change in consumption spending, government spending, export demand,
and import demand.

B. Domestic

As seen in Table 7, the domestic total household income multiplier of the iron and steel
industry is 0.24. This means that a one peso change in investment spending in the iron and
steel industry results in 0.24 centavos of additional household income in the economy. Hence, a
100 million peso investment in the iron and steel industry is estimated to generate 24 million
pesos of additional household income in the economy.

Table 7. Domestic Total Household Income Multiplier and Multiplier Effect of the Iron and
Steel Industry

Total Household Assumed Increase in Multiplier Effect on

Income Multiplier Investment Spending Household Income
(Domestic) (in pesos) (in pesos)

Iron and Steel 0.24 100,000,000 24,000,000

Note: The domestic total household income multiplier is the last element in each column of the
semi-closed domestic Leontief inverse matrix. It represents the additional household income
generated by a change in consumption spending, investment spending, exports, and imports.
The impact variable (change in investment spending) was arbitrarily chosen. The impact
variable could be a change in consumption spending, government spending, export demand,
and import demand.

6. Employment Multiplier Effects of the Iron and Steel Industry

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A. Global

As previously presented in Table 6, a 100 million peso investment in the iron and steel
industry is estimated to generate 32 million pesos of additional household income in the
economy. In terms of employment, a 100 million peso investment in the iron and steel industry
is expected to generate at least 155 additional jobs in the economy (see Table 8).68

Table 8. Global Employment Multiplier Effect of the Iron and steel industry

Household Income Effect

(100 million peso change in 32,000,000
Investment spending; in pesos)

National Annual Average Compensation (pesos) 205,963

Number of Additional Jobs 155

Note: The global household income multiplier effect is taken from Table 6. The number of
additional jobs is derived by dividing the household income multiplier effect by the annual
average compensation. Note that the number of additional jobs has been rounded off to the
nearest whole number. The annual average compensation was taken from the 2009 Annual
Survey of Philippine Business and Industry.

B. Domestic

It was shown in Table7 that a 100 million peso investment in the iron and steel industry
is estimated to result in 32 million pesos of additional household income in the economy. In
terms of employment, a 100 million peso investment in the iron and steel industry is expected to
generate at least 117 additional jobs in the economy (see Table 9).

Table 9. Domestic Employment Multiplier Effect of the Iron and steel industry

Household Income Effect

(100 million peso change in 24,000,000
Investment spending; in pesos)

National Annual Average Compensation (pesos) 205,963

Number of Additional Jobs 117

Note: The domestic household income multiplier effect is taken from Table 7. The number of
additional jobs is derived by dividing the household income multiplier effect by the annual
average compensation. Note that the number of additional jobs has been rounded off to the

68
This was derived by dividing the household income multiplier effect by the national annual average compensation of 205,963
pesos, which was based on the 2009 Annual Survey of Philippine Business and Industry. Note that the 2009 Annual Survey of
Philippine Business and industry is the latest issue of the nationwide survey of business enterprises and industries in the
Philippines.

Page 91 of 110
nearest whole number. The annual average compensation was taken from the 2009 Annual
Survey of Philippine Business and Industry.

7. Strength and Dispersion of the Production Linkages of the Iron and Steel Industry

The strength of the production linkages of the iron and steel industry can be measured
using backward and forward linkage indexes. An index greater than 1 indicates that the
production linkage of the industry is strong, while an index less than 1 indicates that the
production linkage of the industry is weak.

The dispersion of the production linkages of the iron and steel industry is measured
using the coefficient of variation. If the coefficient of variation of the industry is less than the
average coefficient of variation for the economy, the dispersion of the production linkages is
deemed more evenly dispersed. Otherwise, the dispersion of the production linkages is
considered less evenly dispersed.

A. Strength and Dispersion of the Global Backward and Forward Linkages of the Iron
and Steel Industry

The global backward linkage index (power of influence) of the iron and industry is 1.1,
which means that the global backward linkage of the iron and steel industry is strong. Since the
iron and steel industry has strong backward linkage, it stimulates the production of inputs by
various industries in the economy. Based on data from the input-output table, the major
backward linkages of the iron and steel industry are as follows: blast furnace and steel making
furnace, steel works, and rolling mills; households; electricity; wholesale and retail trade;
petroleum refineries including LPG; crude oil and natural gas; banking; manufacture of other
non-metallic mineral products; manufacture of plastic furniture, plastic footwear, and other
fabricated plastics; and ownership of dwellings.

The coefficient of variation of the global backward linkages of the iron and steel industry
(2.57) is less than the average coefficient of variation for the whole economy (2.59). Hence, the
dispersion of the global backward linkages of the iron and steel industry is more evenly
dispersed relative to other industries in the economy. This means that the iron and steel
industry benefits more industries in terms of backward linkages. Based on the strength and
dispersion of its backward linkages, the iron and steel industry can be considered a key
industry or sector because it has strong and more evenly dispersed backward linkages.

The global forward linkage index (sensitivity of dispersion) of the iron and steel industry
is 1.0, which indicates that the forward linkage of the iron and steel industry is neither strong nor
weak. One possible explanation for this is the high import demand of the industry, which is as
high as the intermediate demand for iron and steel products in the economy.69

The dispersion of the global forward linkages of the iron and steel industry is less
evenly dispersed relative to other industries in the economy since its coefficient of variation
(2.00) is greater than the average coefficient of variation for the whole economy (1.6). The iron
and steel industry benefits fewer industries in terms of forward linkages. From the perspective of
forward linkages, the iron and steel industry cannot be considered a key industry or sector

69
This is based on data from the input-output table.

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because the strength and dispersion of its domestic forward linkages are weak and less evenly
dispersed. This is in part a consequence of the heavy import dependence of the industry.

B. Strength and Dispersion of the Domestic Backward and Forward Linkages of the
Iron and Steel Industry

The domestic backward linkage index (power of influence) of the iron and steel industry
is 1.1. Hence, the domestic backward linkage of the iron and steel industry is strong. This
means that the iron and steel industry stimulates the production of inputs by more industries in
the economy. Based on data from the input-output table, the major domestic backward linkages
of the iron and steel industry are as follows: blast furnace and steel making furnace, steel works,
and rolling mills; electricity; households; wholesale and retail trade; petroleum refineries
including LPG; crude oil and natural gas; manufacture of other non-metallic mineral products;
telecommunication services; banking; real estate activities; and manufacture of asphalt,
lubricants, and miscellaneous products of petroleum and coal.

The coefficient of variation of the domestic backward linkages of the iron and steel
industry is 2.86, which is less than the average coefficient of variation for the whole economy
(2.90). Hence, the dispersion of the domestic backward linkages of the iron and steel industry is
more evenly dispersed relative to other industries in the economy. This means that the iron
and steel industry benefits more industries in terms of backward linkages. Based on the strength
and dispersion of its domestic backward linkages, the iron and steel industry can be considered
a key industry or sector because it has strong and more evenly dispersed backward linkages.

The domestic forward linkage index (sensitivity of dispersion) of the iron and steel
industry is 0.29, which indicates that the domestic forward linkage of the iron and steel industry
is weak. The iron and steel industry does not strongly stimulate forward linkages in the
economy.

The dispersion of the domestic forward linkages of the iron and steel industry is 2.11,
which is greater than the average coefficient of variation for the whole economy (1.81). Hence,
the domestic forward linkages of the iron and steel industry are less evenly dispersed relative
to the other industries in the economy. The iron and steel industry benefits fewer industries in
terms of forward linkages. From the perspective of forward linkages, the iron and steel industry
cannot be considered a key industry or sector because the strength and dispersion of its
domestic forward linkages are weak and less evenly dispersed. The high import dependence of
the iron and steel industry is one reason for the weaker and less evenly dispersed forward
linkages of the industry.

Page 93 of 110
 Annex C:

ANALYSIS OF PHILIPPINE COMPARATIVE ADVANTAGE IN IRON AND STEEL PRODUCT EXPORTS

(HS72-73)

In analyzing the comparative advantage of a country in a specific commodity, both the

standard (SRCA) and the bilateral (BRCA) comparative advantage indicators are used. The
SRCA determines the commodities which a country has a comparative advantage relative to the
world, while the BRCA indicator examines the comparative advantage of a country in
comparison to another country.70 In this paper, the Philippine comparative advantage in Iron and
Steel Products (HS73) through time (2003 vis--vis 2011) and across Asian nations will be
studied. The relative changes in measures of comparative advantage can be used to keep
track of the performance of the Philippines in the global steel market.

Table 1 shows the Philippine standard comparative advantage in iron and steel exports
(HS 72 and 73, 4-digit level) with each lines share in the countrys total exports in 2003 and
2011. It can be observed that there were more iron and steel commodity lines exported in 2003
compared to 2011. The Philippines lost its comparative advantage in scraps, exporting tanks,
casks, drums, cans, boxes and similar containers, sewing needles, knitting needles, bodkins
and table, kitchen or other household articles. Nevertheless, this change in the steel export
structure should not be taken as a major downturn. For one, with less exporting activities in
metal scraps, the supply of scrap in the domestic sector, which is used as raw materials by the
upstream iron and steel sector is relatively more plentiful. Also, the share of iron and steel
commodities (HS 73) export value in the countrys total export only became significant in 2011.
In 2003, only three lines have a share in the total export within the range from 0.01-0.02%. 2011
improved to having all the Philippine iron and steel lines with comparative advantage have a
share in the total exports of the country within the range of 0.02%- 0.24%.

Table 1
Philippines Steel Exports (HS 72 and 73) with Revealed Comparative Advantage 2003, 2011

2003 2011
Share in Share
Product Product SRCA total Product Product SRCA in total
Code Name Value Exports Code Name Value Exports
(value) (value)
Ferrous
waste and Tubes, pipes
scrap; and hollow
7204 remelting 1.09 1.09% 7304 profiles, 1.47 0.12%
scrap ingots seamless, of
or iron or iron ...
steel

70
The Bilateral Revealed Comparative Advantage has a formula of:

where the numerator is the share of commodity k in the total exports of country i to the world while the denominator is the share of
commodity k in the total exports of another country, country j, to the world

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 Other tubes,
Other tubes,
pipes and
pipes and
7306 hollow 1.27 0.02% 7306 1.25 0.08%
hollow profiles
profiles (for
(for example..
exampl...
Tube or pipe Tube or pipe
fittings (for fittings (for
7307 example, 1.17 0.01% 7307 example, 2.95 0.13%
couplings, couplings,
elb... elb...
Structures
Screws, bolts,
(excluding
nuts, coach
7308 prefabricated 1.80 0.00% 7318 2.89 0.24%
screws, screw
buildings of
hooks, ri...
h...
Tanks, casks,
drums, cans, Other cast
7310 boxes and 1.71 0.01% 7325 articles of iron 1.12 0.02%
similar or steel.
conta...
Containers for
compressed
7311 1.41 0.00%
or liquefied
gas, of iron...
Sewing
needles,
knitting
7319 4.78 0.00%
needles,
bodkins,
crochet...
Table, kitchen
or other
7323 household 1.13 0.00%
articles and
par...
Other cast
7325 articles of iron 1.30 0.00%
or steel.
Other articles
of iron or 2.10 0.00%
7326
steel.
Source: Tradesift calculation using UN Comtrade data, 2003 and 2011

This is supported by Figures 1 and 2, which show the partner countries where
Philippines export iron and steel goods in 2003 and 2011 respectively. In 2003, the highest
export value of the iron and steel export of the Philippines to a partner country was $1.28
million. By 2011, the countrys highest iron and steel export value is greater than $12.29 million.
Such exports of steel commodities went primarily to five countries namely US, Italy, Germany,
Japan and Thailand.

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 Figure 1
Importing markets for Articles of iron and steel (HS73) exported by the Philippines in
2003
Source: International Trade Center, Trade map 2011

Figure 2
Importing markets for Articles of Iron and Steel (HS73) exported by the Philippines in
2011
Source: International Trade Center, Trade map 2011

Page 96 of 110
 Nonetheless, relative to its neighboring Asian countries, Philippines exports of iron and
steel commodities still pale in comparison to its extent and breadth of its Asian neighbors as
reported in Table 2. Table 2 summarizes the iron and steel export structure of eight selected
Asian countries: China, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore and
Thailand. It specifically gives the total value of the iron and steel exports, total number of iron
and steel lines (4-digit) which the country exports to the whole world, the number of iron and
steel lines which the country has a comparative advantage relative to the world, and the (3)
share in export value of the iron and steel lines with comparative advantage in the countrys
total exports. As the data suggests, among the selected Asian countries, only the Philippines
exports 24 out of 26 lines of iron and steel to the world. The country does not export the
commodities, (1) barbed wire of iron or steel; twisted hoop or single and (2) anchors, grapnels
and parts thereof, of iron or steel. The value of its iron and steel exports is also the smallest -
only a value worth of $338 thousand compared to the corresponding exports of other Asian
countries. Moreover, it has the second lowest number of iron and steel lines with comparative
advantage (5 lines) as well as in the share of the commodities with comparative advantage in its
total exports (0.59%). China is the highest in terms of lines with revealed comparative
advantage (14), which contributes 1.78% in its total exports in value. This is followed by
Thailand, which has 12 lines with comparative advantage comprising 1.15% of its total export
value.

Table 2
Summary of Iron and steel exports of Selected Asian countries, 2011

Iron and steel Exports

Share of SRCA in
Country Exports Total Exports
(in US$ Total Lines with (Value)
thousand) lines SRCA
China 51,196,168 26 14 1.78%
Indonesia 1,905,828 26 11 0.69%
Japan 14,241,132 26 7 1.30%
Korea 11,690,016 26 9 1.57%
Malaysia 2,956,036 26 4 0.91%
Philippines 338,313 24 5 0.59%
Singapore 2,818,284 26 7 0.35%
Thailand 3,461,019 26 12 1.15%
Source: Tradesift calculation using data from UN Comtrade, 2011

It is interesting to note however the case of Japan and Singapore. Both countries have
the same number of iron and steel lines with comparative advantage, but the share of the
commodities to the total export value of Japan is higher than in Singapore (1.30% and 0.35%
respectively). This may be due to the difference in the demand for the countries commodities.
For one, Singapores iron and steel commodity which has the greatest revealed comparative
advantage value is sheet piling of iron or steel, whether or not drilling (code 7301), but this
export commodity is not unique for Singapore as shown in Table 3. Indonesia, Korea, Malaysia
and Thailand all have comparative advantage in the same commodity. On the other hand, only

Page 97 of 110
Japan has a comparative advantage in exporting railway or tramway track construction material
(code 7302). Due to this, the total export value of iron and steel commodities of Japan fairly
exceeds that of Singapore.71
Table 3
Selected Asian Countries Iron and steel Commodities (HS73)
with Standard Revealed Comparative Advantage, 2011
Country Iron and steel Commodity with SRCA
China 7303 7312 7316 7323
7304 7313 7317 7324
7307 7314 7319
7308 7315 7321
Indonesia 7301 7309 7320
7304 7310 7323
7305 7312
7308 7316
Japan 7302 7318
7304 7319
7305 7320
7315
Korea 7301 7308 7319
7305 7309
7306 7311
7307 7312
Malaysia 7301 7309 7313
7305 7310 7317
7307 7311 7318
7308 7312 7319
Philippines 7304 7325
7306
7307
7318
Singapore 7301 7315
7304 7316
7307 7319
7312
Thailand 7301 7312 7320
7307 7313 7323
7310 7315 7325
7311 7318 7326
SOURCE: Tradesift calculation based on UN Comtrade data 2011

71
See Appendix, for the trade map of these countries .

Page 98 of 110
 The comparative advantage of a country can also be examined bilaterally, i.e. relative to
the export performance of another country. Philippine iron and steel commodities with bilateral
comparative advantage vary depending on the partner country. Philippines vis--vis some
selected Asian countries in exporting iron and steel commodities (4-digit) in 2011 is presented in
Table 4.

Table 4
Philippines Bilateral Revealed Comparative Advantage
in 4-digit Iron and steel commodity, 2011
Phil BRCA in Iron and steel export
Country
Lines Code Description
China 7 7304 Tubes, pipes and hollow profiles, seamless, of iro...
7306 Other tubes, pipes and hollow profiles (for exampl...
7307 Tube or pipe fittings (for example, couplings, elb...
7309 Reservoirs, tanks, vats and similar containers for...
7318 Screws, bolts, nuts, coach screws, screw hooks, ri...
7325 Other cast articles of iron or steel.
7326 Other articles of iron or steel.
Indonesia 5 7306 Other tubes, pipes and hollow profiles (for exampl...
7307 Tube or pipe fittings (for example, couplings, elb...
7318 Screws, bolts, nuts, coach screws, screw hooks, ri...
7325 Other cast articles of iron or steel.
7326 Other articles of iron or steel.
Japan 8 7306 Other tubes, pipes and hollow profiles (for exampl...
7307 Tube or pipe fittings (for example, couplings, elb...
7308 Structures (excluding prefabricated buildings of h...
7309 Reservoirs, tanks, vats and similar containers for...
7318 Screws, bolts, nuts, coach screws, screw hooks, ri...
7323 Table, kitchen or other household articles and par...
7325 Other cast articles of iron or steel.
7326 Other articles of iron or steel.
Korea 6 7303 Tubes, pipes and hollow profiles, of cast iron.
7304 Tubes, pipes and hollow profiles, seamless, of iro...
7307 Tube or pipe fittings (for example, couplings, elb...
7318 Screws, bolts, nuts, coach screws, screw hooks, ri...
7325 Other cast articles of iron or steel.
7326 Other articles of iron or steel.
Malaysia 5 7304 Tubes, pipes and hollow profiles, seamless, of iro...
7306 Other tubes, pipes and hollow profiles (for exampl...
7307 Tube or pipe fittings (for example, couplings, elb...

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 7318 Screws, bolts, nuts, coach screws, screw hooks, ri...
7325 Other cast articles of iron or steel.
Singapore 5 7306 Other tubes, pipes and hollow profiles (for exampl...
7307 Tube or pipe fittings (for example, couplings, elb...
7318 Screws, bolts, nuts, coach screws, screw hooks, ri...
7325 Other cast articles of iron or steel.
7326 Other articles of iron or steel.
Thailand 5 7304 Tubes, pipes and hollow profiles, seamless, of iro...
7306 Other tubes, pipes and hollow profiles (for exampl...
7307 Tube or pipe fittings (for example, couplings, elb...
7309 Reservoirs, tanks, vats and similar containers for...
7318 Screws, bolts, nuts, coach screws, screw hooks, ri...
SOURCE: Tradeshift calculation based on UN Comtrade data 2011

Generally, the Philippines comparative advantage relative to the Asian countries are in
tubes, pipes, screws, bolts, nuts, and other articles and casts of iron and steel. Compared to
China nonetheless, aside from the general commodities mentioned, the Philippines shows a
bilateral comparative advantage in reservoirs, tanks, vats and similar containers also.
Meanwhile relative to Japan, the table, kitchen or other household articles of iron and steel
becomes a comparative advantage of the Philippines. Although the Philippines possesses such
comparative advantage, the iron and steel imports of the country still exceed its exports to other
Asian nations. This can be shown by the net trade index of a country. A positive net trade index
means that the reporter countrys exports of a commodity (in this case, Philippines), is greater
than its imports of the commodity from a partner country (Asian country). A negative net trade
index, on the other hand, entails that a countrys imports of a commodity are more than its
exports of the commodity. A zero net trade index implies that the country neither export nor
import the commodity to and from a partner country; while a net trade index equals 100
indicates that a country is only exporting the commodity to the partner country and does not
import that commodity at all.

Table 5 reports the net trade index of the Philippines with selected Asian countries. It
shows that that (1) the Philippines exports articles of iron and steel to all the selected Asian
countries but (2) it imports the commodity from China, Indonesia, Japan, Korea, Malaysia and
Thailand only. Among the seven Asian countries, only the Philippines bilateral trade with
Singapore has a positive net trade index, which has a value of 100, implying that the Philippine
exports certain iron and steel products to Singapore but it does not import such goods from
Singapore. It is interesting to note that the Philippines biggest gap in its imports and exports of
iron and steel commodity is experienced in the countrys bilateral net trade with Malaysia (-
95.04), followed by China (-94.23).

Table 5
Net Trade Index of the Philippine Iron and steel commodity, 2011
by selected Asian countries
Net Trade Index Country
100.00 Singapore

Page 100 of 110

 -0.81 Indonesia
-5.54 Thailand
-46.19 Japan
-77.64 Republic of Korea
-94.23 China
-95.04 Malaysia
SOURCE: Authors computation based on UN Comtrade data 2011

Moreover, Philippines is a net importer of iron and steel commodity in general. Table 6
presents the Philippine net trade index in each iron and steel commodity (4-digit). Among the 26
steel commodities, 23 of them have negative net trade index value less than 100, 2 of them
have an index equals negative 100 (Code 7313 and 7316), implying that the country purely
imports them, while only one has a positive net trade performance of 10. 59 (Code 7307). It is
only in the tube or pipe fittings of iron and steel commodity group does the country have a
greater export value than its import.
Table 6
Net trade index of the Philippines in Iron and Steel Commodity, 2011
Net
trade
Code Description index
7301 Sheet piling, etc of iron/steel -97.98
7302 Rrail, crossing piece, iron/steel -98.75
7303 Tubes, pipes and hollow profiles, of cast iron -94.18
7304 Tubes, pipes and hollow profiles, seamless, or iron or steel -6.45
7305 Tubes&pipe nes, ext diam >406.4mm,of iron &steel -99.94
7306 Tubes, pipes and hollow profiles of iron or steel, nes -4.67
7307 Tube or pipe fittings, of iron or steel 10.59
7308 Structures (rods,angle, plates) of iron & steel nes -88.24
7309 Iron&steel reservoirs,tanks,vats (cap >300l) -48.88
7310 Iron &steel tank,cask,drum can,boxes (cap<=300l) -83.62
7311 Containers for compressed or liquefied gas, of iron or steel -93.08
Iron & steel strandd wire,ropes,cables, etc,not electrically
7312 insulated -95.35
7313 Iron & steel wire,barbed,twisted hoop, etc ,for fencing -100.00
7314 Cloth, grill, netting&fencing, of iron & steel wire -98.10
7315 Chain and parts thereof, of iron or steel -98.93
7316 Anchors, grapnels and parts thereof, of iron or steel -100.00
7317 Nails, staples & sim art, iron & steel -98.94
7318 Iron & steel screws,bolts,nuts,coach-screws, etc 39.62
7319 Iron & steel sewing/knitting needle& sim art for hand use -98.93
7320 Springs and leaves for springs, of iron or steel -94.14
7321 Iron & steel stoves,ranges,barbecues &sim non-elec dom app. -99.54
7322 Iron & steel radiators, air heaters&hot air distributors, etc. -98.52
7323 Iron & steel tables & household articles -89.74
7324 Sanitary ware & parts thereof, of iron or steel -99.74
7325 Cast articles of iron or steel nes -25.43
7326 Articles of iron or steel nes -34.46
SOURCE: Authors computation based on UN Comtrade data 2011

Page 101 of 110

Final Remarks on HS 73 Comparative Advantage

The Philippines iron and steel exports have improved in 2011 relative to 2003. The
country has expanded its exports in HS 73 by 4.05% compared to 2003. Although the country
lost comparative advantage in seven iron and steel lines, it does not hurt the countrys export
performance. The iron and steel commodities exported in 2011 has a greater significance in the
countrys total exports relative to 2003. The share of the iron and steel commodity in the
countrys total exports in fact increased by 2.79%. Furthermore, the pressure in the domestic
price of metal scraps subsided as the country lost comparative advantage in the commodity.

Nevertheless, the export performance of Philippines in terms of magnitude and revealed

comparative advantage still pale in comparison to a sample of Asian countries. The value of the
countrys iron and steel exports to the world is even less than 500 thousand US dollars while the
rest of the Asian countries iron and steel exports are worth two million US dollars at least. The
Philippines is also the only Asian country among the sample which does not export two iron and
steel commodities, barbed wire of iron or steel; twisted hoop or single and anchors, grapnels
and parts thereof, of iron or steel. Furthermore, the country has the second lowest number of
iron and steel lines with comparative advantage among the Asian countries sample. This is may
be due to the fact that the Philippines is a net importer of iron and steel commodities in general.
As a matter of fact, only the tubes, pipes commodity group (HS 7307) shows a positive net trade
position for the country.

In conclusion, as far as the Philippine trade performance in the global iron and steel
market is concerned, there is relative progress. However, compared against its Asian neighbors,
the country has a long way to go.

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