SteelAsia is the
flagship steel company of the Philippines. Nearly one out of every two steel
bars installed in construction are manufactured by SteelAsia, while
about 80% of the rebar needs for infrastructure are supplied by SteelAsia.
SteelAsia Chairman and CEO Benjamin Yao shares their vision in investing
P100 billion on the initial of a three phase 5 year program to develop a robust
Philippine steel industry.
Your company put up a small rebar facility in 1966 and has been supplying over
two million tons a year. Rebar is in the lowest tier of the steel manufacturing
and is a commodity. What’s your strategy shift behind your program?
A1: We describe our
strategy as a natural evolution arising from growth. But to grow in the
manner we did, the first thing that we have to do was to de-commoditize the
We began thinking in
terms of productivity, efficiency, movement and handling, cleanliness and
quality. This became a philosophy of sustainability based on technology and
scale. We put this into action in 1996 with the Philippines’ first modern
rebar mill which at 360,000 tons/year which was then the country’s largest.
quality, lowered costs and was environmentally-friendly, but it also became a
platform for customer-centricity. Our customers create value by building better
structures, and not by managing the rebar logistics. Rebar has 200+ stock
keeping units used in many combinations depending on the structural design.
Having technology that can change specifications quickly enabled us to
produce J.I.T. They could order for immediate needs instead of managing
stocks and double-handling rebars. This grew into other rebar solutions
that would shift rebar management from the customers to us – the rebar company,
as if they were outsourcing part of their operations to us, so they could focus
on their real business.
resulted in growth, and was another platform for our evolving strategy when
development started spreading outside Metro Manila. It led us to another
logistics solution – regionalization of rebar mills. To cut
out high shipping cost for the customers, we put up local mills. Rather
than ‘importing’ from Manila (e.g. Manila to Cebu shipping costs about the same
as Russia to the Philippines), they simply picked up rebar from their local
mill – and this became our one price policy. In a short
time, we operated the only rebar mills of Cebu, Northern Mindanao and Davao
(our latest and largest at 600,000 tons/year capacity). Our customers are happy
because we passed on to them, the entire savings of shipping.
Regionalization is a
platform for inclusive business because we have direct impact on communities
where we are located. We have evolved into an inclusive business,
working with communities to develop and hire from within, and grow local
suppliers and service providers because they too have a long-term stake in our
Our rebar was once a
commodity, but now we have embedded into the rebar, cost solutions, and
Inevitably, as the
industry leader with the wherewithal, it is upon us to expand vertically and
diversify so that the Philippines will finally have its steel industry.
The paradox is that the more we build the business, the less say we have
in it. Our decisions now address our responsibility to our market and our
country. Our strategic and even day-to-day actions are founded on the
belief that the development of the Philippine steel industry is vital to the
inclusive economic growth of our country, as it was with the leading economies
and industrialized nations.
Q2: Were there any difficult hurdles in the growth of SteelAsia and the Philippine steel industry?
A2: Modernizing our
company upset the industry status quo because it was a first and we were using
state-of-the-art technology. It set difficult operating benchmarks and
higher customer expectations and as would be expected, this didn’t sit well
with the rest of the industry.
But then the 1997 Asian
financial crisis hit, and SteelAsia had both the biggest capacity (in a
shrunken market) and the biggest dollar debt – from our investment (at a time
of rapid peso devaluation). These were tough years, and many of the
stakeholders, including the shareholders, employees and financing banks made
sacrifices. But we were firm that our customers would never be burdened
by the difficulties we were experiencing during the crisis. The whole
point of the investment was so that the customers would receive better value,
better service and lower costs, and we continued to give them this. The
banks restructured our debt payment schedule. They understood us and shared our
view that the growth track of the Philippines was certain, with speed bumps and
potholes every now and then on the road. Our customers, on the other hand,
rewarded us with the market share, which filled the capacity of the mill, and
this led to new expansions, and the paydown of our restructured debt. In
2005, we produced 260,000 tons of steel. This grew nine times to 2.3 million
tons by 2016.
I suppose our financial
woes during the crisis also affected the rest of the industry as none of the
players were eager to invest in modernization and expansion. Nobody
wanted to be in the position that we were in – it did take us 14 years to pay
off our debt to the banks. Even as we expanded and further modernized,
many were waiting to see if we would get into trouble again, but we didn’t.
Many were afraid of another crisis but the reality for long term investments is
that it’s never a smooth ride and there are always downturns – but temporary
for a developing country like the Philippines. From a competitive standpoint,
though our competitors know now it is the right thing to do, the gap between us
today is very wide. This is part of the explanation why other than
SteelAsia, you don’t see much investment in our industry despite the strong and
growing demand for steel.
But the biggest hurdle
to making investments is still the long process of approvals. First,
there are so many government agencies that heavy industry investments need to
seek approvals from and they have long and sequential processes, and it’s never
sure until you hold the approval paper in hand. It is also difficult on the
local government level. We’d hope for a decisive “yes” or “no” from
an LGU but politicizing the investment is common and you can end up with a
“maybe” which is the worst thing that can happen because you don’t know if you
should push forward or move to another place. Davao City was a good
example of being decisive. They had a lot of requirements, especially on
environmental due diligence, but once all the requirements had cleared, it was
approved on the very same day – no red tape. On the other hand, we’ve had an
experience where we were left hanging by the LGU for 2 years, and eventually we
gave up and implemented our plans in another place.
Most of the integrated steel mills in the U.S have gone bankrupt. The
mini-mills have costs that are nearly 20% lower than the large integrated
mills, which worked against their high-cost competitors, especially when prices
are not manufacturer-friendly. China’s share of global steel output is about
50%. They have started to shift their growth model from infrastructures to high
tech and services. How will these global factors affect Steel Asia?
A3: The Philippines is a
case where the mini-mill or scrap recycling route is a viable way to integrate
the steel industry.
• The Philippines exports
over 1 million tons of steel scrap a year but has hardly any iron ore exports.
Importing iron ore has its own economics and is subject to the global
• The Philippines is an
archipelago of many islands. A mini-milluses the scrap generation
of a small geographic radius or locale to make steel, and produces steel
products for the same locale – a logistics solution that brings down costs.
• The country also imports
a lot of billets and finished steel. It doesn’t make sense to export
scrap. The profits are not preserved here, but exported and enjoyed by some
other country. It is also a social ill, as the jobs could have been
created in the Philippines, but instead our metal resources are creating jobs
in other countries.
Our medium-term goal (by
2023) is to put up 3 million tons of steelmaking using scrap recycling
technologies. SteelAsia has a 500,000 ton per/year mini-mill for our
current 2 million ton needs. We are looking at 50% self-sufficiency in
steelmaking, anticipating our finished steel capacity to quadruple by 2023.
China has a lot of
steelmaking capacity using blast furnace technology (they recently closed down
200 million tons of induction furnace technology due to
pollution). When China had an oversupply it threatened many steel
industries globally. Today supply and demand has rebalanced and the
situation is healthier. If global steel industries did close due to
prolonged dumping from China then definitely, Chinese prices would skyrocket
the other way. Today, the Philippines is seeing little importation of
billet from China. The Philippines, as a country of significant
population and economic size, should have a certain degree of self-sufficiency
so we are not held hostage by supply and demand imbalances that affect price
and availability. It puts our economic development plans on a more stable
footing, and we simply must deal with unfair trade practice with trade
measures. Philippine companies should not abdicate their duty in helping
our country develop because of fear or the temptation of short term trading
What other threats may happen in the future and how are you addressing them?
A4: China is there, but
the solution to this is to build a more diverse, linked, and integrated
industry. Our costs are competitive and among the best in the world due to the
technology we install. In fact, because we are the last to develop,
compared to other countries, and thus, our industry will have access to the
latest generation technologies offered. By 2023, the Philippines will
have the most modern steel industry in the world.
On the other hand,
unfair trade should be addressed with trade measures. Within the country,
there are still speed bumps in development of the steel industry. Because
of the many agencies you have to deal with, and the sequential fashion you have
to address these, it often takes twice as long to get the final approval to
build than the actual building itself. The government has the solution to
this and we are letting them know so that they can be more attuned to
development of our industry.
Where is the SteelAsia heading now and how will impact the country?
A5: Our main growth
strategy is through import substitution. Including beams,
sheet piles, wire rods, billets and plates, the country imports over 8 million
tons of steel a year and demand continues to grow. Except for billets,
all of these products are 100% imported. Phase 1 of our 5-year
development roadmap is a PhP 100 billion investment plan to install mills to
produce these products. Substituting imports will result in dollar
savings for our country of around USD 4 billion a year and preserve value here
in the Philippines (instead of exporting raw material and importing finished
These expansions will
create over 60,000 new jobs (10,000 within the company and an estimated 50,000
in support industries). In SteelAsia mills, around 80% of the positions
do not require college degrees, and would employ those otherwise difficult to
employ (many of these eventually contribute to social problems). We can
do this because many positions such as machine or crane or forklift operators
require skills that can easily be provided by our own training.
Especially when we put up regional mills, the local workforce (we hire
from within the community) would typically not have any experience in heavy
industry and much less in steel, so we do invest in training within the
community and it pays us back with a strong intact workforce that preserves
organizational learning. Of course, we also need engineers and specialist
technicians, but there is no shortage of this as well. Besides, there are
many young engineers joining the workforce every year (whom we also develop,
including training programs in Europe) and there are also many OFWs working in
steel mills abroad who are only waiting for opportunities back home to use the
skills and knowledge they have gained. In fact, all of our plant heads,
and many department heads in our mills are ex-OFWs who saw the opportunity to
come home because of our expansions. We will continue to do this.
availability of these steel products will lower the cost of construction and
link to downstream sectors (especially SMEs) and help manufacturing resurgence.
Wire rods, for example, are the input material for manufacturing springs,
cables, screws and nails, mesh, welding rods, and everyday items such as paper
clips, staple wire, bicycles, umbrellas and so many more. We import most
of these. Imagine if we had local industries producing these, and the
jobs and wealth it will create in a more inclusive manner.
It is still a tough road
ahead. The steel industry has always been tough. But there are so many
benefits for our country, and this is why we are taking this challenge
Record-breaking, bestselling author Josiah Go is the Chairman of Mansmith and Fielders, Inc. (the leading marketing and sales training company in the Philippines), and Chairman of Waters Philippines (the market leader in the direct selling of premium home water purifiers in the Philippines). He is Chairman / Vice Chairman / Director of over a dozen companies.