An Evaluation of Flat Carbon Steel Production of National Steel Corporation (NSC) from its Privatization in 1995 to its Liquidation in 1999 and its Implications to the Country’s

i

AN EVALUATION OF FLAT CARBON STEEL PRODUCTION OF NATIONAL STEEL CORPORATION (NSC)

FROM ITS PRIVATIZATION IN 1995 TO ITS LIQUIDATION IN 1999 AND ITS IMPLICATIONS TO THE COUNTRY’S STEEL INDUSTRY

A THESIS

Presented to the Graduate Faculty of

Master in Business Management MSU – Iligan Institute of Technology

Iligan City

In Partial Fulfillment of the Requirements for the Degree

MASTER IN BUSINESS MANAGEMENT (Major in Production Management)

ARTURO B. del AYRE, R.E.E. October 2008

iii

ABSTRACT

Flat carbon steel production in the privatized National Steel Corporation

(NSC) during the Wing Tiek—Hottick era succumbed to external forces, such as

the onslaught of cheap steel imports and the cyclical movement of global steel

prices, vis-à-vis fortuitous events in the 1990s. Three prominent events were

considered: the Philippine trade liberalization, the Asian Financial Crises in 1997-

1998 and the global slowdown of steel demand. Albeit a succession of promising

internal factors: high mill-utilization and production rates, soaring material and

prime yields, plus diminutive customer complaints for its finished products, NSC

was threatened with liquidation in 1999, then officially closed on 07 May 2000.

The study attempted to merge quantitative data with qualitative facts

through time-line series graphs, an investigative reconstruction of the past, and

the before-and-after effects of the three events to NSC flat steel production. NSC

flat carbon steel production is significantly correlated to ASEAN steel demand,

and highly, significantly correlated to Global Steel, Flat Steel and Asian steel

price indices. Furthermore, NSC’s flat production is significantly correlated to the

following NSC’s internal factors: production rate, material yield, and quality, in

terms of customer acceptance rate.

Incidentally, the study found that Philippine crude production is highly,

significantly correlated to Philippine and ASEAN steel demand (consumption per

capita). In addition, Philippine Steel raw material imports is highly, significantly

iv

correlated to ASEAN semi-finished and finished steel imports and ASEAN

consumption of finished steel. Furthermore, Philippine raw steel imports is highly,

significantly correlated to Philippine steel demand (consumption of finished steel)

as well as to Philippine steel consumption per capita.

NSC facilities was revived in 2004 by Global Steel Holdings, Ltd. (GSHL)

as Global Steelworks Infrastructures, Inc. (GSII) then later renamed as Global

Steel Philippines (SPV-AMC), Inc (GSPI) in 2005. GSPI promised to inject fresh

capital and bring back former NSC’s dominance in the Philippine steel market,

and aggressively venture partnerships in China, ASEAN, and the world.

A SWOT matrix draws attention to the following STEP recommendations

for GSPI: the benchmarking of the organization (structure); the maximization of

base capacity production through efficient use of resources through ISO

9001:2000 (tasks); the strengthening of GSPI’s domestic market penetration

(environment); the upgrade of GSPI employees’ compensation package (people);

and eventually, the revival of the ISM project, among others.

v

ACKNOWLEDGEMENTS

Many people have contributed to the final version of this thesis, and to all

of them, the author’s heartfelt gratitude is hereby expressed. There are, however,

several who warrant special mention. Dr. Annie J. Orejana as thesis adviser

offered her timely motivation, valuable support and succinct guidance. Dr. Alita

T. Roxas, Dean of the College of Business Administration, guided the author

during the thesis proposal stage, and then offered innumerable judicious

suggestions for improvement of the final form. Prof. Michael M. Gagarra, who

acted as the de facto thesis content adviser, suggested additional snippets of

NSC history and offered supplementary analyses. This triumvirate, as members

of the guidance committee, became a formidable team with their concerned

efforts, insightful comments, profound review of the manuscripts, and timely

completion of this work.

Sincere thanks also to Prof. Milagros R. Narido, MBM coordinator, for

her motherly attention when the author was in search of an adviser, as well as

her perceptive annotations, and Ms. Elizabeth G. Delmo, for her perpetual

encouragement especially her personal reminders on the importance of patience,

hardwork, and coolheadedness during the thesis writing.

The author’s three sisters deserve mention: Ma. Andriena Ida B. del

Ayre-Ofina, for her statistical expertise for this thesis while also writing her own

masteral thesis; Ana B. del Ayre and Ma. Anelyn B. del Ayre-Ome, thesis

financiers, without them the printed form would have been impossible.

vi

All ex-NSC management, supervisory, and rank-and-file personnel, who

lived through and out of NSC’s most trying era, the author’s gratitude is beyond

words. These former and present NSC managerial, support, operations, quality

assurance and maintenance supervisors, staff and assistant engineers offered

their recollection of NSC’s glorious past, participated in the making of the SWOT,

and assisted in the collection of the data used, specially the internal factors.

Mr. Sushant C. Das, then President of GSPI (2004-2006) and Mr.

Munish Dewan, department head of Business Strategy, shared their knowledge

in the steel industry’s Business Strategy while the author was hired as GSPI’s

Analyst. Their subtle queries on what really happened to NSC then became this

writer’s encouragement on re-pursuing masteral studies. Yet, instead of a short

answer, this evolved into writing this lengthy and reflective thesis.

Almira, soulmate-wife, and our sons: R.E.J., R.E.X. and R.E.D. provided

their tender love, infinite patience, understanding and moral support.

Finally, this work is dedicated to The Almighty and Powerful God, for

giving the author the strength, wisdom and serenity all throughout this research.

Last but not the least, this thesis is also dedicated to Papa and Mama, for their

encouragement of completing this thesis after a hiatus of ten years.

Arturo B. del Ayre, R.E.E.

vii

TABLE OF CONTENTS

Page

TITLE PAGE ..................................................................................................... i APPROVAL OF THESIS ................................................................................. ii ABSTRACT....................................................................................................... iii ACKNOWLEDGMENTS ................................................................................... v TABLE OF CONTENTS.................................................................................... vii LIST OF FIGURES...................................................................................................... ix LIST OF TABLES ............................................................................................. xi LIST OF APPENDICES .................................................................................... xiv CHAPTER

1 INTRODUCTION 1 Background of the Study .....................................................................2 Statement of the Problem....................................................................8 Hypotheses........................................................................................10 Significance of the Study ...................................................................10 Limitations of the Study .....................................................................14 Definition of Terms.............................................................................15

2 REVIEW OF RELATED LITERATURE 21 The Philippine Industry and Manufacturing .......................................22 Asian Currency Crisis ........................................................................24 Steel Industry.....................................................................................26

3 THEORETICAL FRAMEWORK 29 4 RESEARCH METHODOLOGY 33

Subject and Scope of the Study ........................................................33 Research Design ...............................................................................35 Research Instrument .........................................................................36 Data Gathering ..................................................................................36 Treatment of Data..............................................................................38

5 PRESENTATION, INTERPRETATION AND ANALYSES 44 NSC Flat Carbon Steel Production, 1995 - 1999...............................44 World/ASEAN Steel Supply (Capacity)..............................................48 The Government-Owned NSC, 1974 - 1994 .....................................57 World/ASEAN Steel Supply (Production) ..........................................61 World/ASEAN Steel Demand (Consumption)....................................67

viii

Philippine Raw Steel Imports.............................................................78 Price Elasticity of NSC’s Raw Steel Imports......................................89 Steel and Raw Materials International Pricing Trends.......................92 Summary: NSC Production versus External Factors.........................96 The Privatized NSC, 1994 - 1999....................................................101 1995-1999 NSC Production Rate ....................................................107 1995-1999 NSC Material Yield ........................................................112 1995-1999 NSC Prime Yield............................................................114 1995-1999 NSC Product Quality .....................................................116 Summary: NSC Production versus Internal Factors ........................122 Events and Emerging Trends in 2000 and Beyond .........................123 NSC on Liquidation, 2000 – 2004....................................................124 The Recharged NSC: GSII to GSPI, 2004 –....................................129

6 SUMMARY, CONCLUSION AND RECOMMENDATIONS 134 Summary of Findings.......................................................................134 Conclusion.......................................................................................140 Recommendations for Future NSC..................................................143 Recommendations for Further Studies ............................................174

BIBLIOGRAPHY 177 APPENDICES 196 CURRICULUM VITAE 276 CERTIFICATE OF AUTHENTIC AUTHORSHIP 278

ix

LIST OF FIGURES

Figures Page

1 Steel Value Chain...................................................................................... 2 2 Snapshot of History from NSC to GSPI..................................................... 3 3 Flat Carbon Steel Production Process Flow.............................................. 4 4 Theoretical Model of Independent Variables affecting NSC Flat

Carbon Steel Production ......................................................................... 32 5 NSC Monthly HRC and CRC Production, 1995 -1999 ............................ 46 6 NSC Quarterly Flats (CRC) Production, 1995 – 2000 ............................. 47 7 Globalization of the Steel Market............................................................. 50 8 Emergence of Steel Companies with over 40 mtpy Capacity.................. 52 9 Comparative HRC Flats Production, 1991-2004 ..................................... 62

10 ASEAN Hot Rolled Flats Production, 1991-2004 .................................... 64 World, ASEAN vs. NSC Crude Production, 1991-2004........................... 6611

12 Evolution of steel specific consumption per unit of GDP, 1950-2005...... 68 13 World Flat Carbon Steel Supply vs. Demand .......................................... 69 14 World vs. ASEAN Apparent Finished Steel Consumption, 1991-2004.... 70 15 ASEAN Apparent Finished Steel Consumption, 1991-2004.................... 72 16 World, ASEAN vs. Philippines Apparent Consumption of Finished

Steel, 1991-2004 .....................................................................................

Apparent Steel Consumption per Capita, in kg ....................................... 76 74

17

18 Philippines Steel Intensity, 1985-2004 .................................................... 77 19 Exports as a Percentage of Global Finished Steel Production................ 78 20 ASEAN Imports of Semi- and Finished Steel, 1991-2004 ....................... 81 21 ASEAN Exports of Semi- and Finished Steel, 1991-2004....................... 82 22 Exports as a Percentage of ASEAN Steel Production............................. 83 23 Philippines Steel Trade vs. NSC Production, 1991-2004 ........................ 84 24 Philippines Steel Imports per Type, 1991-2004....................................... 86 25 NSC Raw Material Imports, 1991-2004................................................... 87

x

26 Slabs Fitted Regression Line Plot ........................................................... 89 27 HRC Fitted Regression Line Plot............................................................. 91 28 Flat Carbon Steel Monthly Index Prices, 1994-2000 ............................... 93 29 Scatter Plot with Regression Line of NSC’s CRC Production vs.

Average CRC Prices ............................................................................... 95 30 NSC Plant Availability and Utilization Computation............................... 108 31 Pickling Lines’ Production Rate MT/EOH (1995-1999) ......................... 110 32 NSC CRC Material Yield vs. Production, 1995-1999 ............................ 112 33 NSC CRC Prime Yield vs. Production, 1995-1999................................ 114 34 Yearly Trend of NSC Customer Complaints, 1988-1999....................... 116 35 NSC's % Customer Acceptance, 1995-1999......................................... 120

Monthly Trend of NSC Customer Complaints, 1995-1999 .................... 121 36

37 NSC Process Flow ................................................................................ 199 38 Economic and Steel Industry Time Line ................................................ 203 39 Transactions for NSC’s Stake (1995-1998)........................................... 204 40 Statistical Summary for NSC CRC Production, 1995-1999................... 205 41 Statistical Summary for NSC HRC Production, 1995-1999................... 206 42 Philippine Steel Scenario in 1995.......................................................... 240 43 Philippine Steel Scenario in 2000.......................................................... 241 44 NSC Production vs Mill Utilization, 1995-1999 ...................................... 256 45 NSC Functional Table of Organization (1993)....................................... 262 46 NSC Functional Table of Organization (2000)....................................... 263 47 NSC’s CSM Function Table of Organization (2000).............................. 264 48 NSC Liquidator Functional Table of Organization (2004)...................... 265 49 GSPI Functional Table of Organization (2007)...................................... 266 50 FreeMind Concept Map for this Research............................................. 269

xi

LIST OF TABLES

Tables Page

1 NSC Flat Carbon Steel Production, 1994 -2000...................................... 45 2 Flat Steel Capacities, Mtpy in 2000 ......................................................... 54 3 Mill Rated Capacities in the Philippines, 1994-2000 ............................... 55 4 NSC’s Annual Rated Capacity (‘000MT) ................................................. 59 5 World/ASEAN Production of Hot Rolled Flats Steel ................................ 63 6 World / ASEAN Total Production of Crude Steel, 1994 – 2000............... 65 7 World/ASEAN Apparent Consumption of Finished Steel, 1994-

2000......................................................................................................... 71 8 World/ASEAN Apparent Consumption per Capita, 1994-2000 ............... 75 9 World/ASEAN Exports of Semi-Finished & Finished Steel, 1994-

2000......................................................................................................... 79 10 World/ASEAN Imports of Semi-Finished & Finished Steel, 1994-

2000......................................................................................................... 80 Philippine Steel Imports, metric tons, 1991-2004 .................................... 85 11

12 Summary of Correlation of NSC Production and World, ASEAN and Philippine Supply (Production) .....................................................

Summary of Correlation of NSC Production and World, ASEAN

.... 97 13

.... 98 14

..... 99 15

.. 100 16

.. 111 18

(Percent Customer Acceptance Rate, %CAR) ...................................... 121

and Philippine Demand (Apparent Consumption per Capita [ACC]) ...

Summary of Correlation of NSC Production and World, ASEAN and Philippine Demand (Apparent Consumption of Finished Steel [ACFS])...............................................................................................

Summary of Correlation of NSC Production and Raw Materials (Semi-Finished and Finished [SF&F]) Imports ....................................

Summary of Correlation of NSC Production and Steel Index Prices..... 101 17 Correlation of NSC Production and monthly NSC's Production

Rate .....................................................................................................

Correlation of NSC Production and monthly NSC Material Yield .......... 113 19 Correlation of NSC Production and monthly NSC's Prime Yield ........... 115 20 Correlation of NSC Production and monthly NSC's Quality Rate

xii

21 Comparative Analyses: NSC Before, After, Now................................

Effects of External Factors to NSC's Flat Carbon Steel Production ...... 135 ... 133

22

.. 213 32

.. 221 42

23 Effects of External Factors to NSC's Flat Carbon Steel Production ...... 137 24 Effects of Internal Factors to NSC’s Flat Carbon Steel Production ....... 139 25 World / ASEAN Total Production of Crude Steel, 1991-2004 (Data:

IISI, various years)................................................................................. 207 26 World / ASEAN Hot-Rolled Flats Production, 1991-2004 (Data:

IISI, various years)................................................................................. 208 27 World / ASEAN Tinplates Production, 1991-2004 (Data: IISI,

various years) ........................................................................................ 209 28 World / ASEAN Apparent Consumption of Finished Steel, 1991-

2004 (Data: IISI, various years)............................................................. 210 29 World / ASEAN Apparent Consumption per Capita, 1991-2004

(Data: IISI, various years)...................................................................... 211 30 World / ASEAN Imports of Semi-Finished and Finished Steel,

1991-2004 (Data: IISI, various years).................................................... 212 World / ASEAN Exports of Semi-Finished and Finished Steel, 31 1991-2004 (Data: IISI, various years)..................................................

Philippine Steel Intensity Data, 1984-2004............................................ 214 33 Best Subsets Regression for NSC Production and World Factors........ 216 34 Analysis of Variance: External Factors: World ...................................... 217 35 Multiple Regression Analysis: External Factors (World)........................ 217 36 Best Subsets Regression for NSC Production and ASEAN Factors ..... 218 37 Analysis of Variance: External Factors (ASEAN) .................................. 219

Multiple Regression Analysis: External Factors (ASEAN)..................... 21938 Best Subsets Regression for NSC Production and Philippine 39 Factors................................................................................................... 220

40 Analysis of Variance: External Factors (Philippines) ............................. 221 41 Multiple Regression Analysis: External Factors (Philippines)..............

Best Subsets Regression for NSC Production and Internal Factors ..... 222 43 Analysis of Variance (Internal Factors).................................................. 223 44 Multiple Regression Analysis: Internal Factors...................................... 224 45 Correlations of External Factors to NSC Production ............................. 225

xiii

46 Correlation of Internal Factors to NSC Production ................................ 227 47 Correlation of NSC Flats Production versus World, ASEAN and

Philippines Steel Production, in Metric Tons ......................................... 228 Correlation of NSC Flats Production versus World and ASEAN 48 Steel Demand—Apparent Consumption of Finished Steel, in Metric Tons, and Apparent Consumption per Capita, kg.....................

Correlation of NSC Flats Production versus World, ASEAN &

.. 229 49

.. 230 50

... 237 55

... 238 56

.. 245 59

... 270

Philippines Steel Trade, in Metric Tons ...............................................

Correlation of NSC Flat Steel Production versus World & Regional Yearly Steel Prices, in US$ ................................................................... 231

51 Correlation of NSC Flat Steel Production versus Monthly World & Regional Steel Prices, in US$ ............................................................... 232

52 Correlation of NSC Monthly Production Tonnage vs. Prime Yield and Material Yield, in percent ................................................................ 234

53 Correlation of NSC Monthly Production Tonnages and Production Parameters ............................................................................................ 236

54 Correlation of NSC Quarterly Production Parameters........................

Correlation of NSC Production vs. Quarterly World Steel Index Prices..................................................................................................

NSC Steel Imports (1994 – 1999) ......................................................... 239 57 Flat Steel Mergers & Acquisitions, 2000................................................ 242 58 Geographical Locations of Steel-Producing Countries........................

List of Asian Steel Companies............................................................... 246 60 Flat Steel Corporate Bankruptcies (1998-2002) .................................... 254 61 Companies That Ended in Bankruptcy .................................................. 254 62 Steel Industry Tariff Reform Schedule, 1991-2000 ............................... 255 63 Summary of Correlations: NSC Production, Production Rate and

Mill Utilization......................................................................................... 257 64 Customer Complaints, 1995 - 1999....................................................... 261 65 A Comparative Table of NSC: Before, Then and Now .......................... 267 66 SWOT Matrix ......................................................................................

xiv

LIST OF APPENDICES

Appendix Page

A Key Informant Interview Questionaire ...................................................196 B Key Informants ......................................................................................198 C NSC Process Flow ................................................................................199 D Economic and Steel Industry Time Line ................................................200 E Transanctions for Nsc’s Stake (1995-1998) ..........................................204 F Anderson-Darlington Normality Tests....................................................205 G Tables of World / ASEAN Steel Data, 1991-2004...............................207 H Philippines Steel Intensity Data, 1984-2004..........................................214 I Multiple Regression Analysis: External Factors ....................................215 J Multiple Regression Analysis: External Factors (ASEAN).....................218 K Multiple Regression Analysis: External Factors (Philippines)................220 L Multiple Regression Analysis: Internal Factors......................................222

M Tables of Correlation .............................................................................225 N NSC Steel Imports (1994 – 1999) .........................................................239 O Philippine Steel Scenario.......................................................................240 P Flat Steel Mergers & Acquisitions, 2000................................................242 Q Geographical Locations of Steel-Producing Countries..........................245 R List of Asian Steel Companies...............................................................246 S Flat Steel Corporate Bankruptcies (1998-2002) ....................................254 T Steel Industry Tariff Schedule, 1991-2000 ............................................255 U NSC’s Mill Utilization, 1995-1999 ..........................................................256 V NSC Corporate Philosohy .....................................................................258

W NSC’s Corporate Quality Policy (1998) .................................................259 X Cold Strip Mill Vision and Quality Policy................................................260 Y Customer Complaints, 1995-1999.........................................................261 Z NSC Functional Table of Organization (1993).......................................262

xv

AA NSC Functional Tabl 263 BB NSC’s CSM Functional Table Of Organization (2000) ..........................264

DD GSPI Functional Table of Organization (2007)......................................266 EE NSC: Before, Then and Now .................................................................267 F

G

H

e Of Organization (2000)......................................

CC NSC Liquidator Functional Table of Organization (2004)......................265

F Freemind Concept-Map for this Research.............................................269 G SWOT Matrix .........................................................................................270 H Special Acknowledgment for Former NSC Personnel...........................272 II List of Abbreviations ..............................................................................275

1

CHAPTER 1

INTRODUCTION

This research focuses primarily on National Steel Corporation (NSC) as a

m

pri iz

assets and settling its debts. It is NSC insiders’ common knowledge that flat

carbon steel, particularly cold-rolled products, was the bread-and-butter of NSC’s

domestic market dominance from its inception in 1974 to its liquidation. Where

relevant and necessary, however, an analysis of international events and its

effects to the Philippine situation, particularly its steel industry, is discussed.

Various nagging questions haunted the NSC’s liquidation in 2000. The

general public has had some snippets of circumstances, notions, and

preconceptions why the premier steel corporation of the Philippines closed but

the root causes have not been fully studied. Furthermore, while majority argued

that NSC closed in 1999 primarily because it was unable to pay its debts, this

study offers an alternative viewpoint aside from the “inconvenient truth” of the

corporate financial scenario during the period of the study.

Three scenarios were prominent, namely: the Philippine Trade

Liberalization in the 1990s, the Asian Financial Crises in 1997-1998, and the

global slowdown of the steel industry in the second half of the 1990s.

anufacturing entity of flat carbon steel products from 1994, on the onset of its

vat ation, to 2000 after its liquidation—the closure of a company by collecting

2

Background of the Study

The steel industry enc subsectors, thus to facilitate

understanding, a simple value chain is provided below, Figure 1:

ompasses many

Figure 1: Steel Value Chain (Adapted from Claessens and Henderson, 2007)

National Steel Corporation was organized on 22 February 1974 from the

assets of Iligan Integrated Steel Mills (IISMI) when the later was subsequently

foreclosed b

ligan City and 11.8

hectares

ment of

the Mainframes, purchase of Computerized Maintenance Management System

y the Development Bank of the Philippines (DBP). NSC acquired the

cold rolling facilities of Elizalde Steel (ELISCON) in 1978 and its tinning lines

three years later. In 1981, the National Development Company (NDC) assumed

full ownership of NSC. Two phases of Five-Year Expansion Projects in 1983-

1988 and in 1991-1992 brought flat steel production capacity from 151,000 tons

in 1974 to 800,000 tons in 1988 then 1,200,000 tons in 1992. Prior to liquidation,

NSC’s manufacturing plant occupied 450 hectares in I

in Pasig City. Installation of a Corex slab-caster in lieu of a Basic

Oxygen blast furnace, the purchase of a Continuous Annealing Line or High-

Convection Furnaces, as well as Computerization Level 3 (the replace

3

for Facilities Management and SCADA for Utilities), among several others were

planne

illets, the raw

materials for rebars and wire rods, NSC was the dominant flat-rolled producer in

d and considered for the next Five-Year Expansion Projects.

Aside from being the country’s leading producer of b

the Philippines and was the country’s only tinplate producer. NSC flat products

consist of hot-rolled coils, hot-rolled plates, cold-rolled coils, and tinplates.

Figure 2: Snapshot of History from NSC to GSPI (Various Sources; see Appendix D for detailed timeline).

In 1992, NSC enjoyed considerable leads in domestic flat-rolled market

shares, particularly hot rolled coils (29%), cold rolled coils (72%) and tinplates

(53%). By 1999, however, market shares slid down to 0%, 22% and 18%,

respectively. From a 53% market share of flat steel in 1995, NSC only garnered

10% of the total flats market by 1999. The downtrend started in 1997 primarily

attributed to the dumping of cheap imported steel products into the country (NSC,

1997). Suits filed by NSC before the Tariff Commission against, CIS/Russian hot-

rolled coils on 23 September 1998 (Tariff Commission, 2000) were dismissed on

30 August 2000 concluding fair competition from normal imports. The case of

Taiwanese CRCs on 28 June 1999 (Tariff Commission, 2001) sacked on 24 April

4

2001 for lack of merit; and South Korean tinplates on December 1996 (Tariff

Commission, 1999) similarly rejected on 18 October 1999 citing excess domestic

and shift in demand from Electrolytic Tin Plate sheets to coils.

Three facilities produce the flat products of NSC, namely: hot strip mills,

cold strip mills and the electrolytic tinning lines. Refer to Appendix C for a

complete list of facilities for flat steel production.

Figure 3: Flat Carbon Steel Production Process Flow (Adapted from the American Iron and Steel Institute)

The Hot Strip Mills, which process slabs to hot-rolled coils and hot-rolled

plates, consisted of Hot Strip Mill No. 1, Hot Strip Mill No. 2 and a Plate Mill.

Brazil, Australia, Korea, Mexico, Europe, Russia and China supplied NSC with

slabs on a spot market basis, but the Asian crisis in 1997 frustrated NSC’s

attempt of a slab supply agreement. Commissioned on 17 July 1993, President

Fidel V. Ramos in his speech during the inauguration ceremonies said, the 1.2

million tons per year Hot Strip Mill No. 2 is “the final phase of NSC’s expansion

effort and the vital link to the full integration of the steel industry in the

5

Philippines” (NSC News, July 1993).

By 30 March 1995, Hot Strip Mill No. 2 attained its all-time highest daily

production of 5,182 metric tons. Hot Strip Mills annual production slid from

792,76

No. 2 was

operational by 1999, while the 500,000 metric-tons-per-year Hot Strip Mill No. 1

3,448 metric tons. Annual

production 121,514 metric

tons b

7 metric tons in 1996, an increase from the all-time high year production of

644,552 metric tons in 1994, to a meager 91,601 metric tons in 1999. The

decrease can be attributed to the fact that only the Hot Strip Mill

was mothballed due to economic reasons, although plans were made to dedicate

it to hot-rolled plates production and to cater to special steel markets.

The Cold Strip Mills produced coils, sheets and tin-milled black plates

from NSC’s Hot Strip Mill-produced or imported hot rolled coils. The hot-rolled

coils are reduced in either the 0.250 million-tons-per-year four-stand or 0.600

million-tons-per-year five-stand tandem mills. Finished products at Cold Strip Mill

reached its daily peak on 23 November 1994 with

volume fell more than 75% from 513,002 in 1995 to

y 1999, compared to an all-time high of 415,420 metric tons in 1993.

Again, the dumping of cheap imports allegedly caused the production slowdown.

The Iligan-based 150,000 metric tons per year Electrolytic Tinning Line

No. 3 produced tinplates from its local Cold Strip Mill production or imported tin-

milled black plates from Japan, Korea, Australia and Brazil. Electrolytic Tinning

Line No. 3 production output in 1995 of 81,464 metric tons, the highest since

80,506 metric tons was attained in 1992, declined to 26,926 metric tons in 1999.

Excess domestic demand was blamed for the downward trend. The Electrolytic

6

Tinning Line No. 2 in Pasig was closed in May 1998 due to economic factors

(NSC N

August 8,

1991, t

control

ews Special Bulletin, 20 April 1998). After the 1983-88 NSC’s Five-Year

Expansion Program, Electrolytic Tinning Line No. 1 was decommissioned in 1992

because of technological obsolescence.

The steel industry (Austria, 1998) particularly the basic iron and

steelmaking integrated with slabmaking, and flats production, among others,

were considered pioneer status in the Foreign Investment Act of 1991 (Republic

Act 7042). With this law in place, the Philippine government allowed greater

foreign investors’ participation in local steel production facilities. On

he President Corazon C. Aquino signed into law Republic Act 7103, Iron

and Steel Industry Act. RA 7103 called the state to provide the boost in making

the industry “the springboard and basis for launching Philippine industrialization”

through the full and efficient use of the country's human and natural resources

considering its critical impact on employment, indigenous resources utilization,

foreign exchange and balance of payments position.

Privatization plans for NSC began as early as 1990. It was successfully

approved by the Philippine government with Malaysia’s Wing Tiek acquiring

ling interests in November 1994. Privatization was pushed by the National

Government to limit its financial exposure on the myriad of government-owned

and controlled corporations, such as NSC. The next year, NSC retrenched about

500 personnel for the first time since 1974. The reduction was premised on

building a leaner organization. Wing Tiek sold its entire 69.2% stake to Hottick in

December 1996 while NDC optioned its own 12.5% stake to the latter on

7

February 1997. On 15 October 1997, the Board of the Philippine Economic Zone

Authority (PEZA) declared NSC as a Special Economic Zone, pending

Presidential Proclamation, with downstream steel products manufacturing and

fabrication industries and related sectors as preferred industries (de Lima, 1999).

loyees Corporate Culture

develo

Prior to privatization, NSC launched its own-version of the Total Quality

Management program. NSC’s TQM encompassed the Total Production

Management System based on a 5S Program, the Operator-Mechanic-Inspector

concept, a series of Corporate Culture seminar-workshops, and Quality

Management Systems. The Operator-Mechanic-Inspector concept, dubbed as

“1:7 in ‘97” program, was a quest for a leaner structure characterized by a

decentralized, autonomous, and accountable organization by reducing superior-

to-subordinates ratio by 1997. The Seven Basic Habits and Interaction

Management were held for supervisory and managerial positions; while Self-

Enrichment Workshops for the rank-and-file. Kaibigan seminar-workshop

culminated these various seminars into an all-emp

pment. Quality Management Systems included Statistical Process Control

and ISO 9000 certification.

By 1995, the Cold Strip Mills and the two Electrolytic Tinning Lines,

including the Billet Steelmaking Plant, were ISO 9002:1994-certified. The Hot

Strip Mills were in the process of certification prior to NSC closure.

In 1999, amidst proposed backward integration plans, equipment and

technological modernization, and employee value-enhancement programs, NSC

officially underwent a liquidation plan resulting in the retrenchment of 1,400

8

employees, while a number opted for earlier retirement.

When NSC closed shop, the scrap iron business lost P1.4-billion and the

Refractories Corp. of the Philippines lost 30% of its market. Mabuhay Vinyl Corp.,

supplier of NSC’s chemicals, was severely hit, and the National Power Corp. lost

P720M

n. Steel trade, however, showed exports were down;

while im

in sales yearly (Philippine Star, 17 May 2002).

On October 2000, the Securities and Exchange Commission ordered the

liquidation of NSC citing that it was unable to make repayments on its debts,

which were about $350 million (Lyday, 2002).

In his privileged speech during the First Special Session of the Thirteenth

Congress of the Senate, Joker P. Arroyo (2005) stated, “National Steel, for the

record, was sold to an undercapitalized Malaysian firm which, in turn, borrowed

heavily from local sources. The Malaysians left and the government is left holding

the bag.” Global Steel Philippines (SPV-AMC), Inc. acquired ownership of NSC’s

assets in 2004.

In comparison with other SEASI members, crude steel production from

1994 to 2000 exhibited a downward trend for the Philippines, in terms of crude

steel and finished productio

ports reached top marks in 1997 and 1999 (SEAISI, 2004).

Statement of the Problem

This research is an evaluation of the flat carbon steel production of

National Steel Corporation from its privatization in 1995 to its liquidation in 1999

9

and its implications to the country’s steel industry. The purpose of this study is to

determ

liquidation in 1999?

2. Fro

2.12.2. worldwide and ASEAN steel demand (consumption)

2.4. steel and raw materials international pricing trends?

3. What is the price elasticity of the supply of NSC flat carbon raw materials,

particularly slabs and hot-rolled coils, from global suppliers?

4. From NSC’s privatization in 1994 to its SEC-declared liquidation in 1999,

what was the effect of the following internal factors on NSC’s flat carbon steel

production:

4.1. monthly production rate

4.3. monthly prime yield

5. What are the implications of the significant events, which occurred right after

to its reopening in 2004, and beyond?

6. Bas

ine how the internal and external factors led to the liquidation of NSC.

Specifically, this study sought to answer the following questions:

1. What was NSC’s monthly and annual flat steel production, in metric tons,

from the privatized NSC in 1995 to its SEC-declared

m NSC’s privatization in 1994 to its SEC-declared liquidation in 1999,

what was the effect of the following external factors on NSC’s flat carbon

steel production:

. worldwide and ASEAN steel supply (capacity, production)

2.3. Philippines’ raw steel imports

4.2. monthly material yield

4.4. quality, in terms of monthly customer acceptance rate?

NSC’s liquidation in 1999

ed on these findings, what recommendations may be made to sustain flat

carbon steel manufacturing at the former NSC plant?

10

Hypotheses

Using a 95% confidence level, the study tested the following null

hypoth

factors:

mption),

ls, respectively.

. monthly production rate, yield, eld, and n monthly customer acceptance rate).

Considering that NSC, or its resurrection from the dustbins of steel

industry, as the Global Steel Philippines (SPV-AMC), Inc., is still the biggest steel

industrial complex not only in Iligan City but as well as in the Philippines, if not

eses:

Ho1. NSC’s flat carbon steel production is decreasing at an increasing

rate.

Ho2. NSC’s production from its privatization in 1994 to its SEC-declared

liquidation in 1999 is not significantly correlated to the following

external

2.1. worldwide and ASEAN steel supply (producN steel demand (consu

tion), 2.2. worldwide and ASEA2.3. Philippines’ raw steel imports and 2.4. steel and raw materials’ prices.

Ho3. Supply of NSC’s raw materials, particularly slabs and hot-rolled coils,

is not responsive to a change in price of raw materia

Ho4. NSC’s production is not significantly correlated to the following

internal factors:

4.14.2. monthly material

i4.3. monthly prime yd o4.3. quality (base

Significance of the Study

11

among the ASEAN member-countries, the findings of this study is significant to:

employees in 1999, several suggestions have been offered by

these in

situation and some reassurance of a probability of recovery after a year. NSC’s

former

the headline

propositions nd a common stance and understanding might be

adopted. Ex tick’s mother

company, R ther one

was that the the revenues somewhere out

of the

operate NSC

someti

was that NS nowingly ran NSC to bankruptcy so that it could be

liquidated and the stockholders could recoup whatever they invested?

Iligan ity also

suffered economically when NSC closed in 1999. To paraphrase an age-old

Iligan City catches the cold. This study is significant

to the local government of Iligan City, the direct beneficiary of NSC’s presence,

because for several years from 1974 until its closure, NSC offered decent and

relatively high-paying employment, both direct and indirect, aside from income

taxes to the local coffers, and tangible contributions to local communities through

NSC’s former employees and customers. When NSC retrenched

almost 1,400

dividuals counteracting NSC’s one-sentence explanation of tight financial

customers were also dumbfounded when news of NSC’s liquidation hit

s. The findings of this study could alternatively explain the various

and insinuations a

amples of these: a consortium was taking over Hot

enong, including Hottick’s stake at NSC (Kwek, 2000). Ano

Malaysian management pocketed all

Philippines, thus it could not afford to pursue the ISM project, or even

on a daily basis (Arroyo, 2005). Worse, from a flyer distributed

me in 1999, when NSC was undergoing exit clearance after retrenchment,

C management k

City local government and local populace. Iligan C

adage: when NSC sneezes,

12

NSC’s social responsibility projects, among others. Thus, the findings of this

researc

I), which

acquire

h could provide an insight on the importance of NSC’s presence to the

growth and development of the locality, particularly Iligan City.

The Philippine government, in particular, and the Philippines, in

general. This study is significant to the Philippine government in assessing the

perceived effects of privatization of a vital component of the industry. Lessons

learned from NSC’s plight might offer new insights to the privatization of other

GOCCs, which are forthcoming this decade. Furthermore, the legislators and

political leaders might now tread more carefully in dealing with privatization and

similar acts of deregulation on primer industries, such as manufacturing. For the

country as a whole, this study is important to the national economic planning

based on the premise that industrial production is a factor of GDP, and steel

production is a leading indicator in the country’s growth and development.

The current dispensation, Global Steel Philippines (SPV-AMC), Inc.,

or other potential investors. The implications of this research to the current

dispensation, particularly Global Steelworks Philippines, Inc. (GSP

d controlling interests on all the assets of the resurrected NSC, through

the Special Purpose Vehicle (SPV) law under the Asset Management

Corporation (AMC) provisions in 2004, would be beneficial inputs to whatever

corporate strategy the latter opts to adopt. Consequently, pitfalls faced by NSC

then can be avoided by GSPI now. With the advent of global mergers and

acquisition, GSPI stands to gain some understanding on the state of the

Philippine steel industry, in general, and the sphere of influence of NSC, now

13

GSPI, in particular, to the domestic and regional steel market, as well as the

global steel market. Furthermore, potential investors to augment GSPI’s quest to

resuscitate NSC’s facilities to commercial operations would be able to see the

NSC’s

ntries

(particu

viability and profitability.

The ASEAN member-countries. The budding steel industry of

respective ASEAN member-countries, particularly Malaysia, Indonesia, Thailand,

Cambodia, Vietnam and Laos, would also gain from this research through an

understanding of the difficulties faced by NSC during the Asian financial crises

and thus could avert similar government actions that would endanger their own

fragile steel industry. Of the ASEAN member-countries excluding the Philippines,

only Malaysia, Indonesia, and Thailand have their respective hot rolling mills.

Thus, with the closure of NSC in 1999, the other members relied more on hot-

rolled coils, and ultimately cold-rolled coils, supplied by Far East cou

larly Japan, Korea and Taiwan) and even from Commonwealth of

Independent States (Russia, Kazakhstan, and Ukraine). Furthermore, with the

boom of construction specifically in Cambodia and Vietnam, this study could also

provide an impetus among the ASEAN member-countries to safeguard the

regional steel industry as an economic cooperative rather than as a loose

aggregation of individual steel industries, such as the Southeast Asia Iron and

Steel Institute (SEAISI).

Other researchers. Indisputably, the boom-and-bust experience by NSC

is a very interesting and enlightening topic. Unfortunately, aside from the case

study conducted by Basilio and Cabasan (2004) entitled, “Local Governance and

14

Economic Challenges of Economic Distress: The Case of Iligan City” with special

focus on the impact of the closure of the National Steel Corporation to Iligan City,

no other formal research was and is being done, and publicly disclosed since

1999. NSC’s historical records of production data, among other things from as

far as b

EAN steel demand and supply, the prices of steel and

raw ma

ack in 1974 to 1999, face the threat of being lost to oblivion due to the

degradation of paper-based or computer-based media, or the haphazard attempt

to clear the NSC grounds of its recorded past. Although a NSC Museum do exist,

it only has space for memorabilia, mementos and other museum pieces but not

historical production data and the like. Thus, this research might induce special

attention to the expeditiousness of at least saving NSC’s recorded past for use in

similar studies by other researchers.

Limitations of the Study

This study is limited to the flat carbon steel production of NSC from 1995,

when Wing Tiek took management control, to 1999 when the SEC ordered its

liquidation. The billet steel production was deliberately excluded from this study.

In the steel industry, billets fall under long, not flat, steel products.

No financial analyses were made on the periods between 1995 and 2000.

This study was limited to the analyses of the effects of the various factors, such

as the worldwide and AS

terials, and steel and raw materials imports, from the point of view of

NSC’s production and manufacturing.

15

Most of the secondary data were taken from NSC’s databank and no

attempt was made on other sources, except those cited, due to time constraints

and financial limitations. Only yearly data from international steel associations

such as SEAISI, IISI, or AISI were used because other monthly figures were

available only at a high price coupled with a required access subscription.

Definition of Terms

A brief glossary of terms used in this research is given below and, when

appropriate, its respective commonly used abbreviation in steel manufacturing

technology is provided in enclosed parentheses.

Apparent steel consumption is the aggregate steel products consumed

that is equal to crude steel production and total steel imports less total steel

ed product weight into crude steel equivalent, the

weight

ssociation of Southeast Asian Nations,

exports. To convert finish

of finished products is multiplied by the following expression: 1.3/ (1 +

0.175c) where c is the domestic proportion of crude steel continuously cast in

any particular year (IISI, 2002). Apparent consumption per capita (ACC) is equal

to the apparent steel consumption divided by the total population.

Apparent consumption of finished steel (ACFS) is computed with the

above expression for apparent steel consumption inverted and applied to total

crude steel production (IISI, 2002).

ASEAN5, as used in this study, is the collective term for the five original

founding member-countries of the A

16

namely

SEAN+3, as used in this study, is the collective term for ASEAN10 plus

tions: China, Japan, and South Korea.

AN10. The aggregate values of

the ap

aled at controlled temperatures; and skin-

passed

Commodity Classification (PSCC) under 6737-6738 series. Typical applications

: Indonesia, Malaysia, Philippines, Thailand and Singapore.

ASEAN10, as used in this study, is the collective term for all the member-

countries of the Association of Southeast Asian Nations, namely: ASEAN5 plus

those nations, which joined later—Brunei Darussalam (1984), Vietnam (1995),

Laos (1997), Myanmar (Burma) (1997), and Cambodia (1999).

A

the three East Asia na

ASEAN steel demand, as used in this study, is the aggregate flat carbon

steel products consumed or purchased by the ten member-countries of the

Association of Southeast Asian Nations, or ASE

parent consumption of finished steel (ACFS) denote the ASEAN steel

demand (consumption). A derived value, termed here as the apparent

consumption per capita (ACC), is also used as steel demand.

ASEAN steel supply, as used in this study, is the aggregate flat carbon

steel products manufactured by the member-countries of the Association of

Southeast Asian Nations, ASEAN10. The total crude steel production in

ASEAN10 denotes the ASEAN steel supply (production).

Cold-Rolled Coils (CRC) are flat carbon steel products made from Hot-

rolled coils, pickled in an acid bath, reduced in a tandem mill, cleaned through an

alkali or electrolytic process; anne

at temper mill. CRCs are classified within the Harmonized System

Numbers (HSN) 7209.00, 7211.23 to 7211.90 and in the Philippine Standard

17

are roofing materials, non-food packaging, pipes and structurals for construction.

NSC’s

coils, wires and

rods, a

production of hot-

rolled a

k plates, flat bars,

slabs,

ve a carbon content of

0.25%

CRCs range from 0.17 to 1.6mm thick and 508 to 1524mm wide (NSC

Customer Primer).

Crude steel production is the total flat steel manufactured during the

period to include semi-finished steel particularly slabs, hot-rolled

s inputs to the production of finished steel products (Lankford, 1985). In

this study, NSC crude flat steel production is exclusive to the

nd cold-rolled coils and strips. Billets, considered by the industry as semi-

finished steels, are categorized as long products. Tinplates are lumped under as

finished products, particularly coated steels.

Domestic steel price, as used in this study, is the nominal selling price of

flat carbon steel products equivalent in local currency.

Flat carbon steel include sheets, strips, tinplates, blac

plates, skelp and hoop, usually produced on rolls with smooth surfaces

and the ratio of width (from 4.76mm in narrow strip to 5182mm in wide) to

thickness (0.13mm thick in light strip to 381mm in heavy plates) is generally high

compared with other rolled products. These products ha

maximum (Lankford, 1985). NSC flat carbon steel, as used in this study, is

limited to slabs and tinplates, as raw inputs; and restricted to sheets, strips, tin-

mill black plates, and plates, as NSC’s processed materials.

Hot-rolled coils (HRC) are flat carbon steel products reduced from slabs

into strips or coils by heating and rolling at high temperatures in a reversing

roughing mill. These products are categorized under the Harmonized System

18

Numbers 7208.00, 7211.13 to 7211.19 and in the PSCC under 6733 and 6736

series. Typical applications include pipe and tubes manufacturers, drums and

fabricators, as well as inputs to cold-reduction processes. NSC’s HRCs are

typicall

red over the input tonnages of raw

steel m

quotient in percent of the

total to

ective capability of

produc

y 1.6 to 6mm thick and 508 to 1600mm wide (NSC Customer Primer).

Imported steel price, as used in this study, is the selling price of flat

carbon steel products as sold in international markets. The CRUspi index prices

were primarily used in this study, while actual prevailing prices were based on

published data in Metal Bulletin, Steel Business Briefing and others.

Material yield (MY), as used in this study, is the quotient in percent of the

output tonnages of steel products manufactu

aterials.

Prime yield (PY), as used in this study, is the

nnages of flat steel products manufactured less the quantity classified as

seconds or rejects, over the total manufactured tonnages in a period.

Production rate (PR), in this study, is the capability of a steel facility or

equipment to produce a certain metric tonnage per specified quantity of time, say

metric-tons-per-year (mtpy) or metric-tons-per-annum (mtpa). NSC production

rate was based on the effective operating hours of NSC’s Pickling Line No. 2,

being the input mill for all HRCs coming from NSC’s Hot Strip Mill No. 2.

Rated capacity, in this study, is the facility’s eff

tion, usually stated in mtpy or mtpa, base on the designed product mix.

Slab is a rectangular steel sector (50.8 to 304.8mm thick, 304.8 to

2032mm wide and 1524 to 12192mm long) which is a raw material for hot-strip

19

mill. (Lankford, 1985) Slabs are categorized under the Harmonized System

Number 7207.12.10.

Steel intensity (SI) is the ratio of steel consumption (i.e., steel demand) to

Gross National Product (GNP), the monetary value of the total production of final

goods

eferred here

as SF&

of steel products, such as cold-rolled coils, given a level of input

materia

cold-rolled

sheets

tenance

costs (

al

flat car

and services (Laplace Conseil, 2007).

Steel imports, as used in this study, are the aggregate quantity of flat

carbon steel products bought from foreign steel producers for domestic use. The

total quantity of the semi-finished and finished steels (henceforth, r

F) bought into a country denotes the steel imports.

Steel Production, as used in this study, is the production of maximum

output tonnages

ls used, such as slabs or hot-rolled coils.

Tin-milled black plate [TMBP], including tin plate [TP], is a flat carbon

steel product produced by depositing a sliver of tin on the surface of

. TMBPs are classified under HSN 7209.18.00, 7210.10.11, 7210.12.00

and 7212.10.00 and in the PSCC under 6742 to 6745 series. Typical applications

include tin cans, tin caps, and food packaging (NSC Customer Primer).

Total Production Management [TPM] is a Japanese model of

maintenance policy promising high mill availability and reduced main

NSC TPM Primer).

Worldwide steel demand, as used in this study, is the aggregate glob

bon steel products consumed by various countries based on published

data from IISI. The world’s apparent consumption of finished steel (ACFS)

20

denotes the worldwide steel demand (consumption). Similar to ASEAN, the

derived apparent consumption per capita (ACC) is also used as steel demand.

ction denotes the worldwide steel

supply.

Worldwide steel supply, as used in this study, is the aggregate global flat

carbon steel products manufactured by various countries based on published

data from IISI. The world’s crude steel produ

21

CHAPTER 2

REVIEW OF RELATED LITERATURE

studies on the three scenarios NSC faced between 1994 and 2000. These are,

namely, the state of Philippine industry and manufacturing including policies

particularly privatization, special purpose vehicle law and tariff liberalization; the

Asian Financial Crises in 1997-98 and its aftermath; and the global slowdown of

the steel industry leading to liquidation or bankruptcy of several manufacturing

plants.

Most of the published researches presented only the facts of these three

events and their repercussions to the national economy, but neither to steel

production, in particular, nor any other manufacturing sector, in general.

Examples, Amponsah and Boadu (2002) tackled the crisis in the U.S. textile and

apparel industry then asked whether it was caused by Trade Agreements and

Asian Currency meltdowns, while Caprio (1998) and Bond and Miller (1999) both

addressed the Asian banking and financial sectors. Meanwhile, the case study of

Basilio and Cabasan (2004) focused on the impact of the closure of NSC to the

local governance and challenges of economic distress in Iligan City, particularly

one that altered population pattern and welfare of the city.

Drapeau (2004) itemized four primary causes of business failure and

subsequent bankruptcy: economic, financial, corporate fraud, and disaster.

This chapter presents an overview of the current research and related

22

Ruling out the last three as insign particular research as insinuated

in the limitations, of part sideration of

economic factors to include industry weakness and poor location. NSC has been

considered a pioneer steel plant in the ASEAN region, thus poor location can be

safely tossed out of the equation, leaving industry weakness as an important

beacon to consider.

The Philippine Industry and Manufacturing

industries, and government-owned and controlled corporations (GOCCs), such

ificant to this

icular interest in Drapeau’s study is its con

The Philippine Industrial Policy in the 1990s can be summarized in two

key words: economic reform and liberalization.

In the 1980s, the Philippines initiated trade policy reforms and opened the

economy to imports to promote competition in the local market. Furthermore,

deregulation in the 1990s demolished barriers to entry in regulated key

as iron and steel, fertilizers, telecommunications and banking, were privatized

(Clarete, 2005).

Luken (1999) noted that from the mid-1970's to 1996 the Philippine

manufacturing sector showed low rates of growth, roughly comparable to those

of overall economic growth and to growth rates in the industrial sector as a

whole.

In 1992, the Philippines signed up for the ASEAN Free Trade Agreement,

which aimed for 0 to 4% regional tariff reduction, over a 15-year period, through

23

the Common Effective Preferential Tariff scheme. Orbeta (2003) wrote that the

Philippines underwent its third Tariff Reform Program four years later. The first

and second were in 1981 and 1991, respectively. The tariff liberalization for some

items, e.g., iron and steel, petrochemicals, garments and textiles, and motor

vehicles, however, were slowed down from 1998-2001 due to the Asian financial

crisis (UNDP, 2003).

From 1995 to 1999, the iron and steel industry’s Gross Value Added in

d, in contrast to a rising trend for

the en

ised at least 50% of Gross Value-

Added

nt policy in the industrialization process is necessary.

tization (2005) suggested that to create economic growth incentives, such

as impr

to legal and regulatory reforms.

constant 1985 prices showed a declining tren

tire steel-based group of industries. Two sectors, particularly the basic

metal products and electrical machinery, compr

attributable to steel-based industries (NSCB, 2004).

Sauer, Gawande, and Li (2003) performed general tests of the big push

industrialization hypothesis of Murphy, Shleifer, and Vishny (1989) for selected

industries, including iron and steel, in a set of eight emerging countries, including

the Philippines, and preliminary results supported the theory that a role for

activist governme

Cook and Uchida’s study (2003) suggested that the deficiency in

appropriate governmental reforms might be the cause for a negative relationship

between privatization and economic growth. Later, Filipovic’s theoretical analysis

of priva

ovement of economic efficiency, increase in investments, and adoption of

new technologies, privatization should be coupled with government commitment

24

Under the First Pillar: Achieving Macroeconomic Stability, Bulan (2004)

urged “the sale of all government holdings in the . . . business sector,” identifying

National Steel Corporation, justifying that it posed conflicts of interest with the

government’s objective.

Asian Currency Crisis

a sharp fall in the

exchan

st Asian

crises o

Tomita (2000) observed that the 1990s experienced a series of severe

international financial crises in places such as Mexico, dubbed as the Mexican

tequila, in December 1994; then Thailand, popularly known as the Asian flu in

July 1997; and finally hit Russia, the so-called Russian virus, in August 1998.

These crises, all occurred in emerging markets, involved

ge rate, a rise in interest rates, a sharp contraction in economic activity, a

domestic financial crisis and an adjustment to the current account.

Bustelo (2000) argued that, despite some similarities, financial crises in

the 1990s have featured substantial differences between them . . . the Mexican

crisis of 1994-95 was associated to private overconsumption; and the Ea

f 1997-99 were basically the result of private overinvestment.

Majid and Yusoff’s study (2004) examined the determinants of currency

crises in Malaysia, Thailand, Indonesia and the Philippines in the period between

1987 and 1997, and found that reserve inadequacy, deteriorating trade balance,

increases of bank’s claims on private sector and misalignment of real exchange

rate increase the probability of a speculative attack. Bustelo surveyed (1998) the

25

crisis t

tors, nor the flight of foreign capital be blamed as the

major cause of the crisis. The study traced the root of the crisis to several

conditions of the countries involved like Thailand,

Malays

y stability; the

conclus

decisions.

hen highlighted (2004) its similarities and differences to the Argentina’s

crisis of 2001-02.

Wong (2004) contended that the Asian Financial Crises was not spread

through common risk fac

economic policies and

ia, and Indonesia prior to its outbreak.

Japan (Shiraishi, 2005) was instrumental in dealing with the Asian

economic crises in 1997-98 by suggesting several measures to tackle the

problem in the ASEAN. In 1997, Japan called for the establishment of the Asian

Monetary Fund. It suggested the new Miyazawa initiative in 1998 to stimulate

economies hit by the crisis. It promoted in 2000 the Chiengmai Initiative

(Eichengreen, 2002) as a mechanism to create a zone of currenc

ion of the Japan Singapore Economic Partnership Agreement in 2001.

Last but not the least measures was the proposal of Japan’s Prime Minister

Koizumi made in Singapore in 2001 for the Japan-ASEAN economic partnership

as the first step to build an East Asian community.

Radelet and Sachs (1998) argued that Southeast Asia should devalue

their currencies in order to recover from the economic turmoil plaguing the region

in the late 1990s. Ahearn (2002) later debunked this claim but instead found that

only the Philippines and Malaysia would benefit from devaluation, while

Singapore and Korea were more sensitive to short term and long-term policy

26

In his speech before the University of the Philippines economists,

Salceda (2004) discussed a roadmap to fiscal rehabilitation after detailing the

econom

dies hosted an event, which

discuss

ic issues confronting the Philippines from 1996 to 2003. Noland (2000),

however, wondered why the Philippines, with its reputation for weakness, fared

better in the crisis than other countries in the region.

Steel Industry

Zinter’s study (2002) of Minnesota’s Iron and Steel Industry from 1974 to

1990 supported similar claims made by many others that imports are significant

contributor to declining employment in the manufacturing sector, however,

competition from import prices was not a direct, statistically significant cause of

employment decline in Minnesota’s iron and steel industry.

In contrast, Orbeta (2002), using Philippine aggregate and sub-level

industry manufacturing data sets, concluded that export inclination shifts labor

demand upward the Hecksher-Ohlin model, while doubting the conception of

wholesale substitution of imports for domestic production.

In 1999, the Center for Trade Policy Stu

ed the steel "crisis" of 1998. At that time, the cause for steel's woes was a

combination of poor corporate decisions and macroeconomics. Hundreds of firms

in dozens of industries experienced falling profitability, layoffs, and even

bankruptcies (Ikenson, 2001). The US steel industry considered 1998 a crisis

point when steel imports rose to great heights while return on sales started its

27

downtu

backdrop, this research

attempted to show their respective and combined ripple effects to NSC’s steel

re is no existing published research singularly done with this

particu

rowth; yet, this study

will inh

the declining employment in the steel industry and Orbeta’s (2002) doubting the

rn. Treado (2004) claimed that between 1998 and 2003, 29 US

steelmakers faced bankruptcy leading to a global loss of 67 million metric tons in

capacity.

Considering these three scenarios as a

production. The

lar viewpoint. Thus, this research attempted to fill this certain gap.

Although, this study primarily bolstered the claims of Sauer, Gawande, and Li

(2003) pushing for an activist government policy on industrialization; Cook and

Uchida (2003) on deficient governmental reforms as the probable cause of

negative relationship between privatization and economic g

erently show that Filipovic’s (2005) privatization with legal and regulatory

reforms proposition was right. The research attempted to show the effect of slow

economic growth (Luken, 1999) further dimmed the prospects of NSC’s steel

production after privatization.

This study took off where Radelet and Sachs (1998), Ahearn (2002) and

other proponents of devaluation left and eventually show that Philippine

economic conditions after devaluation did not help the recovery of steel

manufacturing per se but rather diminished the steel industry’s growth.

Furthermore, using Philippine steel production data sets, this research

hinted the relevance of Zinter’s (2002) conclusion that importation contributes to

28

concept of wholesale import substitution to domestic production.

Lastly, while this paper complemented Basilio and Casaban’s case study

(2004) on the effect of NSC’s closure to Iligan City, but it could act as the catalyst

to other investigations using NSC’s myriad of data waiting to be studied,

analyzed and deliberated before these statistics and records are all lost to

oblivion.

29

CHAPTER 3

THEORETICAL FRAMEWORK

Maurice and Thomas’ production theory, which is linked to the theory of supply

and demand. Although classified into external and internal factors, the

independent variables used in this study were adapted from the generalized

supply and demand functions.

Production theory is “based upon efficiency, i.e., production of maximum

output possible with a given level of input usage or producing a given level of

output at the lowest possible cost” (Maurice and Thomas, 1995). Thus,

rephrasing this theory for this study, steel production is the production of

maximum tonnages of steel products (output) given a level of raw materials used

(input) or producing a given level of steel tonnages at the lowest possible cost.

The theory of supply and demand can be applied to flat carbon steel,

which is traded worldwide without recognition of international borders.

The generalized supply function (QS) is determined a number of factors.

These are the price of good (P), for this study e.g., flat carbon steel; the prices of

inputs used in production or raw materials (Pi), the prices of related goods (Pr),

the level of available technology (T), the expectations of producers concerning

the future price of the product (Pe), and the number of firms (F) (Maurice and

Thomas, 1995).

This chapter presents a theoretical framework based principally on

30

In equation form, it can be

Qs = g (P, Pi, PR, 1)

Similarly, there are principal variables that influence the quantity

demanded (Qd) of a good, for this study, i.e., flat carbon steel. These are the

price of steel products (P), the consumers’ income (M) per capita, the prices of

related goods (PR), the preferences of consumers (T), the expected price of steel

in future periods (Pe), and the number of consumers in the steel market (N)

(Maurice and Thomas, 1995).

In equation form, the generalized demand function can be stated as:

Qd = f (P; M, PR, Pe, T, N). (eq. 2)

The supply and demand functions, respectively, are usually taken into

consideration with the relation of price and quantity per period of time when all

other factors that affect supply, and similarly demand, are held constant. Thus,

for this particular study, the price of steel (P), and the prices of inputs used in

production or raw materials (Pi) were considered on the demand side.

Correspondingly, this study quantitatively considered the quantity

supplied (QS) and quantity demanded (Qd) of flat carbon steel at various prices

(P) as well as the prices of inputs used in production or raw materials (Pi). For

this study, the quantity supplied (QS) is represented by flat steel production in

metric tons for a certain period, say a month, a quarter, or a year; while quantity

demanded (Qd) is represented by apparent steel consumption in metric tons for a

stated as:

T, Pe, F). (eq.

31

certain year. It should be noted, however,

that the

facilities used in its production.

, customers, products and services, technology,

supplie

structure, tasks, environment, and people. Structure consists of the arrangement

and ad

s well as

demog

period, say a month, a quarter, or a

quantity supplied—flat steel production—is limited by the capacity of the

Qualitative factors were descriptively discussed based on several

environmental factors affecting production that are not quantifiable.

Stevenson (1990) classified environmental factors into external

(economic conditions, political scenario, legal environment, technology,

competition, and markets) and internal (human resources, facilities and

equipment, financial resources

rs, and others).

Similarly, Friedman and Gyr (1998) proposed the STEP factors, namely

ministration of resources such as policies, communication mechanism and

reporting relationships. Tasks incorporate work processes, systems and

standards. The environment consists of the political, economic, technological and

social factors, also known as PEST. People include the employees, suppliers

and customers with their respective needs, expectations, talent, a

raphics.

These two models primarily and categorically complemented each other.

Thus, the model constructed for this study was loosely based on the merged

versions of corporate strategic factors introduced by Stevenson (1990), Friedman

and Gyr (1998), as illustrated in the next page:

32

riables affecting NSC Flat Figure 4: Theoretical Model of Independent VaCarbon Steel Production

33

CHAPTER 4

RESEARCH METHODOLOGY

This chapter details the manner in which the research was carried out.

The study attempted to relate quantitative data with qualitative facts. Quantitative

data from various sources such as NSC historical production records, SEC

officially published report, NEDA and National Statistical Coordination Board

(NSCB) statistical records, and IISI, AISI, SEASI and PISI annual reports

augmented by interviews with key informants were the basis for this research.

Snippets of historical facts based on news reports filed by different news

bureaus; working papers of various international bodies under the umbrella of the

United Nations, e.g., ILO, UNCTAD, UNDP, and WTO; and analyses of world

events by well-established experts from various published journals in economics,

world trade, and steel industry formed part of the qualitative aspect of this study.

Subject and Scope of the Study

Limiting the research on the flat carbon steel production of National Steel

Corporation, the research focused on the factors, which affected steel production

to include the steel market scenario existing particularly between the privatization

of NSC in 1995 and after its SEC-approved liquation in 1999. Likewise, world

market events and global economic situation present from 1994 to 2000 were

considered as backdrop.

34

Key informants were form of NSC, customers of NSC flat

carbon steel products, and selected

Former employees of NSC, particularly the executive vice president for

production, assistant vice presidents, area managers, supervisory, and rank and

file personnel at HSM and CSM, because most of them have lived through the

entire experience, validated NSC’s internal factors existing between 1994 and

Former customers of NSC formed part of the key informants to

corroborate the impact of external factors such as economic conditions, political

NSC. Identified probable interviewees consisted of the managerial executives of

Philippine Steel Corporation (PhilSteel), Steel Corporation of the Philippines

list. Transcripts of customers’ interviewed by Andersen and SGV Consulting for

the “Challenges Facing NSC” conference in 1995 were also used.

vided the background information not

perceiv

er employees

personages of Iligan City.

2000 (refer to Appendix B and Appendix HH for a complete list).

scenario, legal environment, technology, competition, and markets faced by

(SteelCorp), Bacnotan Steel, Puyat Steel as well as owners of several steel

service centers and small steel fabricators, refer to Appendix B for a complete

Select Iligan City personalities pro

ed by other respondents. This included incumbent and former city

government officials, various heads of the city’s non-governmental organizations

dealing with NSC such as the leaders of the Chamber of Commerce, managers

of local suppliers of NSC’s materials and supplies used in steel production,

among others (refer to Appendix B for a complete list).

35

Resear

while quantitative

data n

one through an

analysi

999. The year

1994 w

ch Design

Qualitative research formed a major part of this study

umerically proved that the events occurred and were statistically

significant.

This study used developmental method whereby patterns and sequences

of growths and decline of steel production as a function of time, particularly on a

monthly, quarterly or annual basis, was investigated. This was d

s of a time-line series of data.

Investigative method was used to examine three prominent scenarios—

the Philippine trade liberalization, the Asian Financial Crises, and the global

slowdown of steel demand—during the period 1995 to 1999 then determined and

explained the differences and similarities before 1995 and after 1999.

The study attempted to reconstruct the past objectively and accurately in

relation to the hypothesis that NSC’s steel production and manufacturing plans

are not positively correlated with the worldwide and Asian steel demand and

supply after its privatization in 1994 or that NSC’s liquidation in 1

as included to trace events that were rooted in that year but the effect was

felt only in the next. Moreover, the year 2000 was included to show the

consequence of the conspiring scenarios until 1999.

No sampling was needed because the research heavily relied on

secondary data from NSC databank.

36

Research Instrument

key informant interviews were done either face-to-face for those

domicil

d to show.

ts, former NSC employees,

supplie

lobal flat steels demand (consumption) and supply (production) between

Qualitative data gleaned from key informant interviews helped bring out

the meaning and pattern of the gathered quantitative data.

The

ed in the Philippines or by correspondence though the use of electronic

mail (e-mail) for key persons residing abroad using an interview schedule (refer

to Appendix A). These interviews (refer to Appendix B: Key Informants), provided

insights where the numerical data faile

Due to the confidential nature of the responses, some of the respondents

requested that they were to be identified only by their job positions.

Data Gathering

Secondary data, i.e., planned and actual quantitative data of NSC’s flat

carbon steel production between 1994 and 2000, were retrieved from NSC’s

historical databank mainly through the courtesy of Antoinette G. Manzo, Financial

Analyst, Finance, NSC. Several other persons, listed in the Appendix HH, also

helped in the data retrieval. Similar data were obtained from the SEC, NEDA,

and National Statistical Coordination Board (NSCB) to verify its accuracy and

veracity. These data were validated with key informan

rs and customers. Raw production data are included in the Appendix M

while processed data are cited in the preceding chapter.

G

37

1995 and 1999 were gathered from various sources on the World Wide Web,

such as

existing data. Steel

importa

magaz

spapers and

magazines were researched for national data and events, especially concerning

l industry. The results of data mining are presented in Appendix

D. Literature concerning the explanation of political, economic and industry using

models and theories were examined. Pertinent working papers, discussion

series, conference proceedings, and compilations of the various arms of the

United Nations, namely, ILO, UNCTAD, UNDP, and WTO, were also reviewed.

Monthly steel prices were obtained as separately monitored and

published by International Iron and Steel Institute (IISI), Southeast Asian Iron and

Steel Institute (SEAISI), and the Philippine Iron and Steel Institute (PISI).

Similarly, NSC’s domestic and foreign selling prices were acquired from NSC’s

historical databank then compared to published prices as monitored by

internationally known steel monitors such as Commodities Research Unit, Metal

Bulletin, Steel Business Briefings and World Steel Digest.

IISI, SEASI, AISI, CRU, and other published reports by similar databank

institutions. This ensured triangulation and traceability of

tions and exportations were sourced from published reports of the DTI,

PISI, and NSO.

Data mining was employed to gather various news reports on the world

economy, Asian Financial Crises in 1997-98, and the world steel market scenario

between 1994 and 2000. The NSC News, the official monthly corporate

ine of NSC from 1976 to 1997, with its supplements was greatly relied

upon for local data and events. In addition, Philippine daily new

NSC and the stee

38

Prevailing steel prices for slabs, HRCs, CRCs and plates are frequently

published on a low-and-high weekly basis per geographical area such as Asia

(mainly Japan and China), CIS countries (primarily Russia and Ukraine), United

States, Latin America and Western Europe by Metal Bulletin, Steel Business

Briefing, among others. The weekly steel prices were collated to generate a data

pair of

,

which

low and high prices for each month. These generated monthly means

were compared to the Composite Resource Unit steel price index, CRUspi, which

provided a tableau of flat carbon steel prices per month (refer to Appendix M,

particularly Table 50 and Table 51).

Process and specifications data were taken from a variety of NSC internal

publications and inter-office documents, technical and feasibility reports, mill

construction drawings, and operating manuals.

A typical product flow of NSC’s flat carbon steel production processes is

diagrammatically shown for clarity and better understanding of the system of

NSC’s steel manufacturing. Equipment specifications detailed certain aspects

and various limitations of NSC’s manufacturing equipment capability, if any

affected steel production capacity. These were incorporated in the

analyses; else, these were shown in the Appendix C: NSC Process Flow.

Treatment of Data

Raw steel quantitative data on production or supply, demand, prices, etc.

gathered from various sources were verified, validated and triangulated. For

39

various

nd computation. Microsoft Excel’s

robust

ated in the Minitab 14 software.

NSC data, triangulation was done by comparing official reports by

different production participants, such as, production planners, operations

supervisors, and maintenance engineers. Steel prices were crosschecked using

the official publications of iron and steel institutes cited above versus published

prices by steel monitors, such as Composite Resource Unit. These were collated,

tabulated and presented into coherent tables and figures.

The statistical software, Minitab 14, was primarily used for correlations

and multiple regressions, and graphical generation. It also served as a guide to

the basic interpretation of statistical tables a

graphical editing component, which Minitab lacked, was used to highlight

features of some graphs. Formula for the various statistical tools, mentioned

hereafter, was not shown as these were incorpor

Anderson-Darling normality test

This test was used to determine if gathered quantitative data followed a

normal distribution, refer to Appendix : Anderson-Darlington Normality Test. If

the p-value is lower than the pre-determined significance level, e.g., 0.05 or 5%,

the data do not follow a normal distribution.

F

Multiple Regression

Multiple regression analysis was used to determine the causal

relationship between the four (4) identified external factors, which serve as the

independent variables, versus NSC’s production, the dependent variable for the

40

period between 1994 and 2000, refer to Appendices I, J and K: Multiple

Regression Analysis: External Factors. The model for the external factors,

namely worldwide and ASEAN steel demand (Qd), worldwide and ASEAN steel

supply (Qs), steel price index (P), Philippines raw steel imports (M) versus NSC

production, is:

NSC Production = a + b1•Qd + b2•Qs + b3•M + b4•P. (eq. 3)

SC Production = a + b5•PR + b6•MY + b7•PY + b8•%CAR. (eq. 4)

Pearso

Multiple regressions were also employed to the four (4) identified internal

factors, production rate (PR), material yield (MY), prime yield (PY) and quality

represented by the percent Customer Acceptance Rate (%CAR), refer to

Appendix L: Multiple Regression Analysis: Internal Factors. The model for the

internal factors versus NSC Production (NSC) is:

N

n product moment correlation (Pearson ρ)

This test was performed on World and ASEAN steel demand

(consumption), steel supply (production), steel and raw materials’ prices, and raw

steel importations against NSC’s flat carbon steel production. From the

correlation coefficient of the above external factors versus NSC flat carbon steel

ion of results and analysis was done. Similarly, correlation

tests w

production, a discuss

ere done for the internal factors, such as production rate, material and

prime yield, and quality, in relation to NSC’s flat carbon steel production.

41

The raw monthly data from NSC databank, such as production tonnages,

production rate (PR), capacity utilization, material yield (MY), prime yield (PY)

and per cent customer acceptance rate (%CAR) were totaled to arrive at

annualized values. Monthly data were used for the correlation of internal factors

in relation to NSC’s production because this method gave a more accurate

correla

Correlation, Table 45 to Table 55. The latter, however, were used to correlate

NSC’s

tion factor than annualized values. Refer to Appendix M: Tables of

annualized production with yearly data published by SEAISI, IISI, or AISI.

Monthly data from these online sources, although available, were usually

expensive and required a similarly costly access subscription.

Time-series Plots

Furthermore, time-series plots graphically displayed fluctuations in the

gathered data over a period of time, say monthly, quarterly or yearly basis. Time

eries of data over time, detect

season

Series Plot was employed to detect trends in a s

ality of the series data, and compare trends across groups of data.

Descriptive trend analyses were provided and generalizations were made based

on facts highlighted for clarity. The time-series plots were annotated with similar

studies or appropriate comments from key informants bolstering the analyses.

Scatter Plot with Fitted Regression Line

Price elasticity of demand for raw material inputs, either as slabs or hot-

rolled coils, to cold-rolled coils were computed based on the procurement prices

42

as repo

ith this general demand equation, the demand curve is drawn using a

rices. From the demand curve, the price elasticity of demand

was th

as

also made. Using Joerg Mueller’s FreeMind, a GNU General Public Licensed

ated topics were mind-mapped. A mind-

map is

rted by the NSC’s Raw Materials Procurement department. Correlation

and regression were used to plot the relationship between price and quantity.

Correlation was first employed to calculate the Pearson product moment

correlation coefficient between each pair of these two variables: quantity (Q) and

price (P). A scatter graph with a fitted regression line was used to generate the

general demand equation, with quantity (Q) in metric tonnage as the response

using unit price (P) in dollars as the predictor, or in formula form:

Quantity = β0 + β1 (Price) (eq. 5)

where: β0 = constant; β1 = slope = ΔQ/ΔP.

W

random series of p

en computed, with metric tonnage (Q) and unit price (P), using the

following formula:

Elasticity ε = (ΔQ/ΔP) х (P/Q) = β1 х (P/Q). (eq. 6)

Accuracy of gathered qualitative data was analyzed by crosschecking

sources and facts then these were presented descriptively in a chronological

order. Based on filed press and published media reports, a review of events w

software, the gathered concepts and rel

a tree with many colors, pictures, and text representing the concepts and

related topics (refer to Appendix FF: Freemind Concept-Map for this Research).

43

A tabulated timeline was created to show significant events from 1994 to

2000 to highlight the scenario faced by NSC during the period of the study, i.e.,

1995 to 1999, refer to Appendix D. A qualitative analysis of the rise and fall of

NSC from a historical and manufacturing perspective, specifically on flat carbon

steel production, was done and this is covered in Chapter 5.

Acknowledging that the steel industry is one of the most dynamic sectors

in any economy; thus, events and emerging trends in the steel industry beyond

the exclusive period of this study, from 1995 to 1999, were as a

separa vital to the appreciation and

understanding of the recommendations in Chapter 6. Without discussing these

events

ses of production parameters before 1995 and after 2000 also

presen in Appendix O

conclusion is provided based on these aforementioned analyses as to

the fut

included

te section in Chapter 5. The inclusion was

from 2000 to the present, the perspective of the implications of what

happened to the privatized NSC to the present dispensation, particularly GSPI,

would be shortsighted or seemingly without the necessary foundation.

Comparative analy

ted in Table 21 found in page 133, as well as .

A

ure role of NSC, and its subsequent resurrection, in the Philippine

industrial scene, as well as in the regional or international steel market. An

attempt on Strength-Weakness-Opportunities-Threat (SWOT) matrix for the

resurrected NSC was devised to show the interdependence of these four (4)

matrix parameters based on the exposition in Chapter 5: Presentation,

Interpretation and Analyses. The SWOT matrix, shown in the Appendix GG,

encompassed also the qualitative aspect of the study.

44

CHAPTER 5

This chapter presents each external and internal factor in

PRESENTATION, INTERPRETATION AND ANALYSES

the Problem

Statement in separate subsections. Individual figures and graphs are presented

first, followed with a short interpretation, and then annotated with similar studies

exposition of the transition from pre-privatized NSC, then Wing Tiek and Hottick’s

era, to the current NSC owner, GSPI, is also introduced where appropriate.

specifically from 1995 to 1999, analysis of NSC’s plight deemed it necessary to

incorporate other facets of the global, ASEAN, and Philippine scenarios—specific

cluded in

some figures and graphs to aid the respective analyses done for the particular

period of this study, i.e., 1995 to 1999, which is appropriately highlighted.

NSC Flat Carbon Steel Production, 1995 - 1999

ember 2004.

or appropriate comments from key informants reinforcing the analyses. An

Although the focus of this paper dealt with flat steel production of NSC

to the steel industry—intertwined with fleeting references to political, economic,

and market factors. Thus, data prior to 1995 and beyond 1999 were in

From 1975, NSC was the only manufacturer of hot-rolled flat carbon

steels in the Philippines but its hot-rolled production waned by June 1999.

Beginning December 1999, however, there was no flat carbon steel production at

NSC until the resumption of operations by GSPI in Dec

45

Table 1: NSC Flat Carbon Steel Production, 1994 -2000

(Data Source: NSC)

Table 1 shows a yearly summary of NSC production for the three flat

carbon

ge (yr-

on-yr % change) for NSC production was decreasing at an increasing rate.

lity test was used (refer to

Appendix E: Anderson-

exhibited less than the predetermined 0.05 significance level, thus both the

gathered data do not follow a normal distribution.

steel, namely hot-rolled coils (HRC), cold-rolled coils (CRC), and tin-

milled black plates (TMBP). Moreover, with reference to Figure 1 in page 2, only

hot-rolled and cold-rolled steel are considered at NSC as crude steel. Hot-rolled

coils used imported slabs as raw materials and subsequently hot-rolled coils are

the input for cold-rolled coils. Tin-milled black-plates, or TMBPs, although

physically flat in form, fall in the sub-category of coated steel under the finished

steel classification. Table 1 clearly shows that year-on-year percent chan

The Minitab’s Anderson-Darlington norma

Darlington Normality Tests). The p-value is 0.024 for cold-

rolled coils production and 0.013 for hot-rolled coils production. The p-values

46

0

10

20

30

40

50

60

70

J'95 '96 '97 '98 '99

99NSC Monthly HRC and CRC Production, 1995 - 19

Hot-Rolled CoilsCold-Rolled Coils

FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND

(Data: NSC)

NSC monthly production shown in Figure 5 illustrates the dependency of

cold-rolled coils volume to that of hot-rolled coils (HRC) production at NSC’s Hot

Strip Mill No. 2. Whenever Hot Strip Mill No. 2 hot-rolled coils production from

slabs is insufficient, NSC resorted to purchasing additional hot-rolled coils from

its regular suppliers from China, Russia, Mexico, Australia, South Korea and

Brazil. This scenario for NSC is a simple example of Koda’s (1995) theorem on

Figure 5: NSC Monthly HRC and CRC Production, 1995 -1999

self-support ratio between capacity expansion and steel demand.

Panganiban, Analyst of PISI, claimed that based on her previous studies,

historical NSC production is not cyclical in tendency on a monthly- or quarterly-

basis, thus she suggested that this study would suffice with a year-end

summaries for production volumes (Interview, 2007).

47

Quarterly NSC Flat Steel Production,1995-1999

NSC Production

0.81

0.96

0.360.22

(0.11)

(0.39)

(0.24)

(0.47)

(0.30)

(0.11)

-

50

100

150

200

250

300

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

1995 1996 1997 1998 1999

'000 metric tons

(0.60)

(0.40)

(0.20)

-

0.20

0.40

0.60

0.80

1.00

% qtr-on-qtr

Fire at5STCM

Figure 6: NSC Quarterly Flats (CRC) Production, 1995 – 2000 (Data: NSC)

On a quarterly-basis, flats production, particularly cold rolled coils, see

Figure 6, at NSC also peaked in the third quarter of 1997. NSC’s production was

severely affected by the accidental fire sustained at its Five-Stand Continuous

Mill in March 1998 that cold-rolled production considerably declined thereafter

and never regained its pre-Asian Financial Crises level until its liquidation in 1999

allegedly, according to several industry observers.

There is apparent trend of per cent quarter-on-quarter (% qtr-on-qtr) as

shown in Figure 6, but disregarding the fire between 1997Q4 and 1998Q1, the

quarterly increase during Q3 each year would virtually exist except for the peak

in 1995Q2.

48

Several managers, in separate interviews, explained this Q3 peak as

NSC’s attempt to stock finished goods prior to the holidays in Q4. From

inception, they clarified; NSC adopted the manufacturing policy of production-to-

inventory, especially for identified fast-moving cold-rolled coil gauges.

World/ASEAN Steel Supply (Capacity)

Globalization of the Steel Industry. The 21-member Asia-Pacific

Economic Cooperation, or APEC, was established in 1989 as the premier forum

in the Asia-Pacific region for facilitating trade and investment and promoting

economic cooperation and growth. From the start, APEC worked for tariff

reduction and removal of other trade barriers across the Asia-Pacific region,

reasing exports.

All the ASEAN5 countries are members of APEC (APEC, 2005).

n was formally organized to

deal w

creating more efficient domestic economies and dramatically inc

Furthermore, in 1992, the Philippines signed up for the ASEAN Free

Trade Agreement (FTA) (Cuyvers and Pupphavesa, 1996). Later, either alone or

as an ASEAN member, Philippines would sign additional FTAs with other

countries, such as China, Japan or economic communities, e.g. European Union

(de Melo, 2004).

Then in 1995, the World Trade Organizatio

ith global rules of trade between 123 nations. The Philippines is signatory

to this global compact (WTO, 2005).

According to Friedman (2005), the second era of globalization ended in

49

2000,

e, shaped

by individuals instead of corporations. While the previous two eras were driven

eing driven by non-Western, non-white

countri

’s economy, is

neither

ignificantly present in more than one country.

gional steelmaker serving a national market

into a n

Wall in the 1980s transformed a national steelmaker into a continental one

coincidentally the official year reckoned when NSC closed, where

multinational companies changed the landscape and shrunk the world from

medium to small despite the Great Depression, World Wars I & II and the Cold

War. In 2000, the world has gone from small to tiny and for the first tim

by Europe and America, this third era is b

es such as China and India. In this new era, the ten flatteners—The Berlin

Wall, Netscape, Work Flow Software, Open Sourcing, Outsourcing, Offshoring,

Supply Chains, Insourcing, In-forming and The Steroids—began to converge,

and thus, the world became flat (Friedman, 2005).

With globalization in a flat world, new opportunities, challenges and

partners are presented. The ‘highly cyclical and very competitive’ (Anwar, 2004)

global steel industry, being one of the prime movers of the world

immune nor reactive but rather oftentimes proactive in dealing with these

three elements.

Laplace Conseil (2000), a consulting firm for the London Metal Exchange,

acknowledged that prior to 2000, Ispat, Tenaris, Arcelor and Riva were the only

steel companies s

Figure 7 below illustrates the transformation of a regional steelmaker from

the 1970s into a continental one in 1990s through a series of events. The oil

shocks in the 1970s transformed a re

ational steelmaker supplying a continental market. The fall of the Berlin

50

serving the international market. By the 1990s, triggered by deregulation, a

continental steelmaker became an international steelmaker catering to the global

market (Laplace Conseil, 2000).

Figure 7: Globalization of the Steel Market (Source: Laplace Conseil, 2003)

ed consolidation,

thus creatin

New challenges—deregulation of the steel industry—meant bankruptcies,

while new opportunities—mergers and acquisitions—exemplifi

g new partners (Considine, 2005; refer to Appendix P: Flat Steel

Mergers & Acquisitions, 2000).

Prominent steel bankruptcies include USA’s Acme Steel and Thailand’s’

Nakornthai Strip Mill in 1998; and USA’s Wheeling-Pittsburgh and LTV Steel in

2000 (refer to Appendix S: Flat Steel Corporate Bankruptcies, 2000).

51

Moitti and Sachwald (2006) noted that globalization redrawn the map of

the industrial world; and while foreign direct investment has been a powerful

engine of globalization in the 1990s but by 2000 it shifted gears to the expansion

World Steel Supply (Capacity). Katrak, et. al. (2002) described a

fragmented steel industry in 2000, which began in the 1990s, and predicted that

consolidat

of productive activities in low-wage countries. Aside from cheap labor, however,

expansion shifted to some countries because of proximity to raw material

sources, reduced tariff and taxes, among others.

Glasmeier and Leichenko (1999) simply defined globalization as

liberalized markets, free-flowing capital and lower-cost goods.

Globalization is the growth of international trade (Deardorff and Stern,

2001), plus the expansion of foreign direct investment, multinational corporations;

integration of world capital markets and resulting financial capital flows,

extraterritorial reach of government policies, attention of global issues, and the

constraints on government policies imposed by international institutions.

ion will continue in all major steel producing and consuming areas; but

argued that consolidation is not the same thing as globalization as evidenced by

the fact that most steel companies that have ventured overseas largely managed

their investments as separate entities.

Consolidation or globalization, the steel industry was not spared, thus

mergers and acquisitions were prevalent (again, refer to Appendix P: Flat Steel

Mergers & Acquisitions, 2000).

52

Figure 8: Emergence of Steel Companies with over 40 mtpy Capacity (Source: POSCO, 2004)

Historically (IISI, 2007) American, German, Korean and Japanese steel

firms h

market focus, asset utilization gains and

access

are slow to realize, R&D savings have little

ave dominated the steel market. Later, however, referring to Figure 8 saw

the emergence of European steel giants like LNM, Arcelor and Corus Group.

Hatch Associates (2001) observed that in the last 25 years the steel

industry worldwide has invested $330 billion . . . for an overall return of 4%.

Hatch Associates itemized that operating cost savings, R&D savings,

globalization, cultural fit, product and

to technology are the motivating factors to consolidate steel investments.

However, without due diligence what actually happens is value disappointment

because operating cost savings

53

impact, globalization adds complexity, the prevalence of cultural mismatch,

product/market focus and asset utilization gains are difficult to achieve, and

access to technology becomes limited.

Payne (2001) noted, however, a brisk and impressive pace of

restructuring and consolidation for West European steel industry during the last

several years prior to 2000 was juxtaposed with a lackluster progress in North

America.

Weston (2002) wrote that U.S. deemed it unacceptable either for its steel

companies to merge domestically or cross border to reduce costs fearing that a

reduction in the number of U.S. steel companies would intensify oligopoly and

Wo at in 2000, there was an undersupply of

world’s flat steel capacities particularly for hot rolled (1%), cold rolled (5%) and

galvan

ed

the inc

reduce competition.

etzel (2002) observed th

ized steel (2%), while there was an overcapacity for other steels—1% for

plates and 12% for bar/rebar. Woetzel, moreover, expected that investment plans

to offset the capacity shortage, and in some segments, will most likely exce

rease in demand growth from 2000 to 2005.

ASEAN Steel Supply (Capacity). Generally, steel mills capacities have

steadily increased through the years. At the end of the year 2000, Table 2 below

shows a summarized tabulation of flat steel capacities of global steel mills and a

detailed one for ASEAN member-nations.

54

Table 2: Flat Steel Capacities, Mtpy in 2000 Source: CRU Analysis: Steel Sheet Quarterly, April 2005

Koda, et. al. (1995) observed in 1995 that self-support ratio between

capacity expansion and steel demand increased over time, but a situation of lack

of supp

mills accounted for 11.8% of

Asia’s 38.02Mtpy and 4.0% of world’s 111.25Mtpy, refer to Appendix R: List of

Asian S

fully integrated steel complex, 100

percent government-owned, a monopoly functioning as prime mover of the

ly capacity in ASEAN will continue until the year 2005.

By 2000, ASEAN steel mills only accounted for 6.2% of Asia’s 170.56-

million tons per year (Mtpy) Hot Rolled mill capacity, and only 2.5% of the world’s

431.09Mtpy. For Cold Rolled mill capacity, moreover, ASEAN steel mills

accounted for 8.6% of Asia’s 87.54Mtpy and 3.2% of the world’s 233.68Mtpy. For

Galvanized mill capacity, however, ASEAN steel

teel Companies. These capacities would change in 2006 (IISI, 2007).

Philippines’ Steel Supply (Capacity). Back in 1953, Henares (2006)

chronicled that the country envisioned “a

55

country's industrialization, servicing and inducing an entire series of down-stream

steel-based industries, ranging from construction, to automotive and appliances,

to food canning industries.” Henares further pointed out that the Philippines was

20 years ahead of South Korea and Taiwan which entered the steel industry only

in the early 1970s, followed much later in the 1980s by Indonesia, Malaysia and

Thailand (Henares, 2006).

Table 3: Mill Rated Capacities in the Philippines, 1994-2000 Source: CRU Analysis, April 2005

56

Through the years, NSC strongly believed that downstream expansion

would risk jeopardizing relationship with its most important customers, the

galvanizers. Table 3, based on CRU Analysis—April 2005, lists the Philippine

steel companies with their respective mill rated capacities. CRU Analysis (CRU,

2005) clarified that from 1994 to 2005, no new mill capacities were added in the

Philippines. Thus, when NSC resumed operations in 2004 as Global Steel

Philippines (SPV-AMC), Inc. (GSPI), the latter inherited the biggest hot-rolling

indanao Steel and

Philippine Steel Coating (Philsteel) have cold-rolling facilities for their respective

and cold-rolling mill capacities in the Philippines. Only M

galvanizing lines (CRU, 2005).

Even today, only the former NSC plant boasts of a hot-rolling capacity

since 19 May 1993, aside from hosting the biggest cold-rolling capacity (Lyday,

1995). Still without an Integrated Steel Mill, the Philippines is therefore

constrained to import slabs from foreign suppliers for feed the country’s only hot

rolling mill (NSC Annual Report, 1989). NSC facilities do not have any

downstream capacity, particularly in galvanizing, except for its tinning lines—the

only one in the country—which supplied many tin can manufacturers.

Lamberte, et. al. (1999) examined the impacts of the Asian Financial

Crises 1997-98 on 541 Philippines manufacturing firms and found a clear

indication that their capacity utilization rates started to decline even before the

onset of the crisis in July 1997. Capacity utilization continued to drop possibly

caused by both cyclical and structural factors—as the crisis stretched to 1998.

57

The Go

nning lines in Pasig, Metro Manila then acquired

the bille

ngineering

gradua

es

vernment-Owned NSC, 1974 - 1994

This background is an expanded version of the Introduction. It is

reiterated here as a foundation to the recommendations in Chapter 6.

National Steel Corporation was an amalgamation of several domestic

long and flat steel companies. It became a government-owned and controlled

corporation under the aegis of National Development Corporation in 1984, from

the foreclosed assets of Iligan Iron and Steel Mills, Inc. (IISMI) in 1981. The latter

succeeded the National Shipyard and Steel Corporation (NASSCO) authorized

by RA 1396 to set up pig-iron smelting plants in 1951 (Henares, 2006). In 1983,

NSC purchased the ELISCON ti

t making facilities of the Philippine Blooming Mills, Inc. in 1984, and lastly

Visayan Integrated Steel (VISCO) cold rolling equipment in 1985. (NSC News, 29

February, 1992)

By taking over the business operations of these distressed corporations;

NSC absorbed 98% of the total IISMI workforce, and 90% of ELISCON’s

employees. Between 1981 and 1990, (San Pedro, 1994) an additional 230

employees were recruited from the top ten (10%) per cent of e

tes nationwide—dubbed as the “cream of the crop”, younger blood with

impressive academic credential but hardly any work experience. This new blood

was from Industrial Engineering (IE) then later transformed to Engineering

Management Training (EMT) program where NSC internally trained them in all

aspects of plant operations. IE pioneers and 11 batches of EMT graduat

58

occupied key supervisory and technical positions in operations, maintenance,

suppor

ny from E.

Rodriqu

1986, after the EDSA Revolution, NSC launched an

Organi

established and published in 1988 as the Seven Corporate Values (refer to

t, and project management groups.

There were also personality changes at the helm of the compa

ez and Larrazabal (political appointees) to Jose Ben Laraya

(professional/technical) which brought about the change in management

systems, including financial and budgetary controls (NSC, Annual Reports).

In 1980s, NSC became prone to various sub-cultures in its many work

groups caused by diversities in academic backgrounds, work experiences,

geographic origins and age levels of its hired and assimilated employees. This

prompted the adoption of management by objectives (MBO) as the basis for

corporate planning and budgeting system. NSC managers then codified the

corporate MBO which later evolved into the NSC Corporate Philosophy (refer to

Appendix V). In

zational Self-Renewal Program, anchored on NSC’s human resource

philosophy: “A change in men, rather than of men . . . at all levels, in all divisions,

covering all facets of the corporate operations, in a manner that unites rather

than divides the NSC organization in the pursuit of its corporate mission.” After

that program in 1986, the Corporate Philosophy officially became part of the NSC

Mission Statement, which cemented the congruence of goals among NSC’s

various publics while harmonized the interests between employees, the

corporation and the country (Narciso, 1992).

With its corporate mission in place, a corporate value system was

59

Appendix V: NSC Corporate Philosophy). Armed with a “sense of being” and

collective corporate values, NSC completed in the same year the construction

and im

(Data: NSC)

plementation of Phase I expansion program, shown in Table 4 below, and

has focused on becoming a major supplier of flat steel products in the country.

Table 4: NSC’s Annual Rated Capacity (‘000MT)

In 1989, NSC adopted a corporate slogan: “We’re building a country,”

premised on the eventual integration of the local industry and the industrialization

of the country (NSC News, October 1992). The technical and technological

preparations, to realize this dream then, were already being attended.

Corollary to that, NSC adopted four (4) guiding principles in its expansion

and modernization program, and these are capability optimization of existing

facilities, acquisition then upgrading of idle domestic facilities, acquisition then

retrofitting of foreign second-hand facilities, and reliance on internal cash

60

generation and corporate profit reinvestment (NSC, 1994).

On the Human Resources aspect, with the belief that people are its most

important asset, NSC’s competitive hiring rates were much coveted that its

turnover rate of 1.5% in 1990s was probably the lowest in Philippines industry

(NSC News, August 1992).

by more than 200% after the

completion of Phase II-A with the installation of the 1.20 mtpa seven-stands Hot

per ye

lanned to

comple

NSC increased its Hot Strip Mill capacity

Strip Mill No. 2. Consequentially, about 0.400-mtpa was added to Cold Strip Mill’s

capacity when NSC commissioned 1.00-mtpa Pickling Line No. 2. Thus, the total

NSC’s primary capacity—includes Hot Strip Mills and Billet Shop—is rated at

2,000,000 metric tons per year or 2.00-mtpy.

Prior to the commercial operations of the new Hot Strip Mill, NSC secured

in 1990 long-term supply agreements with four major slab exporters. It has

agreements with Companhia de Siderurgica de Tubaraò (CST) for 300,000 to

500,000 MT per year; Pohang Iron and Steel Co. Ltd. (POSCO) for 100,000 MT

ar; and China Steel Corporation (CSC) for 100,000 MT per year; plus

Broken Hill Proprietary Ltd. (BHP) for 100,000 MT of slabs/HRC minimum supply

per year (NSC News, April 1990).

An incremental Phase II-B, drafted in 1994 (NSC, 1994), p

te the balancing of plant capacities—expansion of Hot and Cold Rolling

capacities to 2.80Mtpy and 1.6Mtpy, respectively—then integrate rolling

operations from Hot Mill to Tinning Lines. The main feature of Phase II-B for

Pasig was the conversion of the Halogen ETL1 to produce tin-free products. On

61

the NSC’s 20th Anniversary on 22 February 1994, Rolando S. Narciso, President

and CO

eel Mill (ISM) project. When NSC closed, technical

feasibil

April 1995 Mindanao-wide 138kV

grid po

O, remarked, “Phase II-B will allow this company to gain additional

capacities at a very minimal investment cost per ton” (NSC News, March 1994).

Phase III involved the full integration of NSC into iron and steelmaking,

dubbed as the Integrated St

ity and cost studies for Phase III had already been carried out by US

Steel’s subsidiary, USX Engineers. NSC was even contemplating on the

installation of a direct-smelting ironmaking plant and a thin-slab flat rolling or

Corex compact-strip mill somewhere in PHIVIDEC Industrial Estate, Misamis

Oriental (NSC News, September, 1993).

With the lesson learned during the 25

wer collapse (Valencia, 1995), the ISM project (Longakit, 1993) was

planned to be autogenous—self-generated power and energy—aside from

contributing an additional 300 megawatts of excess electric power to the

Mindanao grid. Furthermore, a self-liquidating prospect, ISM (Bañares, 1990) will

improve NSC profitability as it will address NSC’s existing and long-term

vulnerability to supply and price fluctuations of its raw materials required for its

continued operations.

World/ASEAN Steel Supply (Production)

World Steel Supply (Production). Globally, steel is produced on each

four corners of the world. Countries with steelmaking capability are usually

62

grouped, sometimes arbitrarily, by geographical locations: Western Europe,

Eastern Europe, North America, South America, Asia, Africa and Oceania

(Australia and New Zealand). Table 58, shown in Appendix Q, grouped the steel-

produc

(IISI, 2007; CRU, 2004).

ing countries, such as Europe classified into the European Union (EU15)

and the rest are lumped as Western Europe. The former member-states of USSR

are grouped into Commonwealth of Independent States (CIS) while the rest are

retained as Eastern Europe. North America includes the Caribbean islands plus

Central America. Asia is further grouped into East Asia, South Asia, and

Southeast Asia; the latter are mostly ASEAN-members. Middle East nations are

separately grouped from the rest of Africa

World vs ASEAN Hot-Rolled Flats Production, 1991 - 2004

ASEAN

East Asia

South Asia

World

150

200

250

350

400

450

500('000 metric tons)

0

50

100

300

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Asian

CrisisFinancial

Figure 9: Comparative HRC Flats Production, 1991-2004 (Data: IISI, SEAISI)

63

Figure 9 shows the trend of hot-rolled coils production for the ASEAN in

relation to the world HRC flats production. A slowdown is apparent for the year

1998, during the Asian Financial Crises, but ASEAN’s HRC flats production

continuously grown to higher levels after the crisis (refer to Appendix G for the

complete table of raw data used to generate Figure 9). Table 5, below, highlights

the hot-rolled flat steel production for the years 1994 to 2000.

Table 5: World/ASEAN Production of Hot Rolled Flats Steel Source: IISI

64

Taccone (2006) considered the 20-year span between 1979 and 1998 as

the dar

orted steels.

k period, “an aberration”, with the steel industry's crude steel production

exhibiting only a meager 3% growth compared to 6% between 1946 and 1978,

and then 6% again after 1998 to present.

Although there was a peak in HRC production in 2000, refer to Figure 9,

the world HRC flats production, moreover, experienced (Ikenson, 2002) a

sluggish performance in 2001, when USA imposed tariff on imp

ASEAN Hot-Rolled Flats Production, 1991 - 2004

Indonesia

Malaysia Philippines

Thailand

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

('000 Metric Tons)

AsianFinancial

Crisis

Note: Other ASEAN members no Hot-Rolled Flats capacity

Figure 10: ASEAN Hot Rolled Flats Production, 1991-2004 (Data: IISI, SEAISI)

ASEAN Steel Supply (Production). Hot-rolled flat steel production

determines the total domestic finished flats production, i.e., cold-rolled flat steel

65

and tin

of Crude Steel, 1994 – 2000 Source: IISI, various years

plates. It is economically viable for a steel company with hot-rolled

capacity to use domestically produced hot-rolled coils for its downstream

finishing lines (Koda, et. al., 1995).

Table 6: World / ASEAN Total Production

Shown above is a tabulation of world and ASEAN total crude steel

production for the period 1994-2000. Appendix G, Table 25 shows the raw data

for the world and ASEAN total crude steel production used to create Figure 10.

There are four hot-rolled steel-producing member-countries of ASEAN,

namely: Thailand, Indonesia, Malaysia and the Philippines. Figure 10 illustrates

66

that of the four flat-steel-producing ASEAN members, only the Philippines and

Thailand decreased its hot-rolled steel production after 1996, while the rest have

continuously increased its respective production for the ten-year period: 1993-

2003, but all decelerated during the Asian Financial Crises, respectively.

World, ASEAN vs NSC Crude Production, 1991-2004

NSC Crude

ASEAN Crude

ASEAN Crude y-o-y26.20

World Crudey-o-y

(0.29)

NSC Crude, 56.25 y-o-y

(51.43)

(72.78)

(4.53)

0

2

4

6

8

10

12

14

16

18

20

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

('000 metric tons)

(80)(70)(60)(50)(40)(30)(20)(10)-102030405060

%y-o-y

AsianFinancial

Crisis

Figure 11: World, ASEAN vs. NSC Crude Production, 1991-2004 (Data: IISI)

Comparing the per cent year-on-year (%y-o-y) change in NSC production,

Figure 11 shows that while the World crude production oscillated in the ±10% y-

o-y band, and the ASEAN crude production moved between –20% and +40%

year-on-year, NSC spiraled down to its lowest point of –72.78 % year-on-on-year

by 1999 from a peak of 56.25% year-on-year six year earlier.

67

Eerily, the downhill trend for NSC began well before the Asian Financial

Crises in 1997-98, but rather in 1994, the banner year when it was privatized

during the Ramos administration.

Data shows that there is a strong positive correlation between NSC crude

production to the Philippine crude production (refer to Appendix G, Table 25).

e ratio of steel

consumption to Gross National Product (GNP), the monetary value of the total

produc

This acknowledges the fact that NSC is the only hot-rolled manufacturer in the

Philippines. Furthermore, NSC production data exhibited a negative weak

correction versus both the World and ASEAN crude production. Compared to

both world and ASEAN, NSC crude production is very small in tonnages.

World/ASEAN Steel Demand (Consumption)

Steel Intensity. Through the years, flat carbon steel demanded

worldwide was invariably always slightly greater than the available steel

produced by various countries. Global steel demand (Christmas, 2003) is

expected a continual increase while risk appears more on a downside, unless

raw material shortages and shipping problems prevent supplies rising.

Steel consumption can be measured by steel intensity—th

tion of final goods and services (Laplace Conseil, 2007).

The Iron and Steel Institute conceptualized in the seventies the steel

intensity, which varies according to the stages of country’s economic

development, is differentiated below:

68

Stage 1: Pre-industrialization. Steel intensity is low and its applications are for exploitation of mineral resources, agriculture and food industry. Stage 2: Industrializing. The country starts to industrialize, thus heavy

distribution, and telecommunicatiinvestments are focused on infrastructure: transportation, power generation and

ons. Steel intensity gradually rises.

Stage 4: Transition. The country has already industrialized and has a well-

GNP. Steel intensity declines. (Laplace Conseil, 2007)

Stage 3: Industrialization. The country is already an industrializing one with rapid growth in steel consumption for the machinery and equipment, consumer durable, and shipbuilding industries. Steel intensity accelerates.

established industrial infrastructure. Steel intensity stabilizes. Stage 5:Post-industrialization. The country already saturated its industrial products. Service-based and sophisticated industries comprise more share of the

Figure

Figure 12 is a merged version of three authors as cited below, whereby

12: Evolution of steel specific consumption per unit of GDP, 1950-2005. (Sources: L. Conseil, 2007; Taccone, 2006, Goodyear, 2007)

69

each c 84 to

2004, w 77.

e 1, South Korea

in Stag nsity

is prominent in Singapore. The U.S.A. and Western Europe would be on the later

part o ced by a shift from

manufa 7).

omplemented the others. Steel intensity for the Philippines from 19

ith analysis for the particular period 1994-2000, is discussed in page

In the year 2000, Figure 12, the Philippines was in Stag

e 2, Taiwan was nearing Stage 3 steel intensity. Stage 4’s steel inte

f Stage 4 going unto the last stage, eviden

cturing towards the service industry (Taccone, 2006; Goodyear, 200

World Flat Carbon Steel Supply v Demand

219.

845

223.

744 236.

355 25

1.81

0

258.

415

280.

353

271.

447 28

9.50

7

316.

872

303.

697

325.

988

346.

546

220.

344

224.

163

237.

338 252.

260

259.

036 28

1.28

1

272.

819 29

0.44

1

317.

916

304.

342 32

6.72

2 346.

846

200.0

250.0

300.0

350.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Million metric tons

Supply Demand

Source: CRU, IISI, SEAISI, AsianFinancial

Crisis

orld Steel Demand (Consumption). Even during the Asian Financial

Crises

Figure 13: World Flat Carbon Steel Supply vs. Demand (Data: CRU, IISI, SEAISI)

W

in 1997 to 1998, steel demanded worldwide was slightly greater than what

70

was supplied by various steel producers worldwide. Between the years 1995 to

2000, Figure 13 shows a slow but increasing trend for world steel demand, still

slightly greater than the world steel supply, yet on the onset of the Asian

Financial Crises, an abrupt decrease in demand as well as supply is noticeable

(CRU, 2004).

World vs. ASEAN Apparent Finished Steel Consumption 1991-2004

1000.0('000 metric tons)

World

ASEAN

East Asia

South Asia

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1991 1992 1993 4 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004199

AsianFinancial

Crisis

Figure 14: World vs. ASEAN Apparent Finished Steel Consumption, 1991-2004 (Data: IISI, SEAISI)

Fig nd of the World and ASEAN Apparent

Finished Steel Consumption in 1991 to 2004. The World Apparent Finished Steel

Consum

ure 14 compares the tre

ption declined during the Asian Financial Crises brought by the decline in

ASEAN and East Asia’s consumption.

71

ASEAN Steel Demand (Consumption). Koda, et. al. (1995) found that

there is a tendency for steel demand in Asia to increase in proportion to GDP

growth, yet would level off then decrease when GDP reached a certain level. On

a country basis, such as the ASEAN countries, domestic demand can be

estimated by both GDP and population trends.

Table 7: World/ASEAN Apparent Consumption of Finished Steel, 1994-2000

72

Shown above is the tabulation of apparent finished steel consumption of

ASEAN countries plus other countries in Asia (refer to Appendix G for the

complete table of raw data used to generate Figures 14-16).

ASEAN Apparent Finished Steel Consumption 1991-2004

Indonesia

Malaysia

MyanmarPhilippines

Singapore

Thailand

VietNam

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

('000 metric tons)

AsianFinancial

Crisis

Figure 15: ASEAN Apparent Finished Steel Consumption, 1991-2004 (Data: IISI)

Moreover, the apparent consumption of finished steel, although shown an

increasing trend for the previous years to 2004 as illustrated in Figure 15, was

slowed during the Asian Financial Crises. Apparent consumption in ASEAN,

however, belatedly regained momentum only by the year 2002, in contrast with

73

the earlier resumption of upward trend for the whole of Asia and the world (see

also Fig

1995. NatSteel Asia (SEAISI Newsletter, March 2007) believes that this growth in

glomutan,

1981)

1995, NSC expected domestic steel demand to grow unabated. Total

deman

ure 14 on page 70).

Vietnam’s apparent finished steel consumption, seemingly unaffected by

the slowdown during the Asian Financial Crises, continued its upward trend from

Vietnam will continue to grow strongly because its steel consumption per capita

is still relatively low.

Philippine Steel Demand (Consumption). Paglomutan (1981) found

that the Philippine steel (flats and longs) consumption was “highly dependent on

three factors: domestic steel production, import price of steel, and construction

expenditures.” The third factor was expected because it was the “take-off stage”

of a country’s economic development.

Furthermore, Paglomutan observed that the Philippine steel consumption

“increased 3.4 times over the period 1960-1977”, then using a econometric

model forecasted an “increase by 7% per year; to reach 2-million metric tons by

1990; and a 4-million-metric-ton mark by the end of the century.” (Pa

In

d was projected to reach to about 3.00 million metric tons, or a 13%

growth rate compared to 1994 demand levels. A low forecasted 10% growth was

also considered citing that historical cyclical expansion is only 3 years, although

a four-year expansion (1987-1990) was recorded once in the past 27 years from

74

1968 (NSC Annual Report, 1995).

Apparent Consumption of Finished Steel, 1991-2004

Philippines

ASEAN

(64.82)

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

(70)

(60)

(50)

(40.75)

Philippines 27.28

0

5

10

15

20

45'000 m

(80)

(40)

(30)

(20)

-

ASEAN

(2.02)World

25

30

35

40

etric tons

(10)

10

20

30% yr-on-yr

AsianFinancial

Crisis

Figure 16: World, ASEAN vs. Philippines Apparent Consumption of Finished

Apparent Consumption of Finished Steel (ACFS), Figure 16, of the

Philippines before and after the Asian Financial Crises 1997-98 fluctuated ±30%

year-on-year; for ASEAN it was ±20% year-on-year, and for the world this was

±10% year-on-year. During the Asian Financial Crises 1997-98, however, the

Philippines’ apparent consumption went down to –40.75% year-on-year that also

brought down the ASEAN apparent consumption to –64.82% year-on-year

(combined with the decrease in consumption in Thailand, Malaysia and

Indonesia). This resulted to the world’s apparent consumption to –2.02% year-

Steel, 1991-2004 (Data: IISI)

75

to Appendix G, Table 28 for raw data). on-year in 1998 (IISI, 2007). (Refer

Table 8: World/ASEAN Apparent Consumption per Capita, 1994-2000

Shown above is the tabulation of apparent steel consumption per capita

in kilograms (ACC) of ASEAN countries plus other countries in Asia compared to

the apparent steel consumption per capita in kilograms (ACC) of the world (see

76

Appendix G Table 29, for the complete table of raw data used for Figure 17).

Apparent Steel Consumption per Capita, 1991-2004

36.8040.70

58.60Philippines

196.19180.77

ASEAN 256.67

126.80

131.10166.30

World

0

50

100

150

200

250

300

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

kg

AsianFinancial

Crisis

Figure 17: Apparent Steel Consumption per Capita, in kg (Data: IISI)

In terms of Apparent Consumption per Capita (ACC), in kilograms, the

Philippines apparent consumption hovered at 45kg per capita, almost one-fifth

that of the averaged ASEAN at almost 200kg per capita; or one-third that of the

World at 132kg per capita. Figure 17 confirmed that during the Asian Financial

Crises 1997-98, the Apparent Consumption per Capita the world over, including

ASEAN, decreased (refer to Appendix G, Table 29 for raw data).

Applying the IISI concept of steel intensity (refer to Figure 12 previously)

to the Philippine steel industry, using the Apparent Steel Consumption per capita

77

from IISI and available raw data of per capita income (representative of the GNP)

from NEDA and National Statistical Coordination Board (NSCB), the graph

below is provided.

Philippines Steel Intensity, 1984 - 2004

1997

1996

2001

2002

1998

19991994

20042000

1995

2003

198415Ap

10

20

25

30

35

40

45

50

55

60

500 600 700 800 900 1,000 1,100 1,200Per Capita Income [PPP], US$ source: NEDA, NSCB

p. C

rude

Con

sum

ptio

n, k

g pe

r cap

ita

Figure

. Enlarging the

cluster

18: Philippines Steel Intensity, 1985-2004 (Data: IISI, NEDA, NSCB)

Figure 18 shows that although there was a steady climb for steel intensity

since 1984, it wavered in 1994—a reaction with the then impending privatization

of NSC. The trend recovered until 1996 then curved to year 2000

of steel densities between 1998 and 2001, see inset of Figure 18, the

steel density for the successive years circled between 1998 and 2001 (refer to

78

Appendix H for the Philippine steel intensity data used to create Figure 18).

Philippine Raw Steel Imports

In 1994, the world was experiencing an aggregation of nations to form

Free Trade Areas as well as Regional Trade Associations. By 1995, the World

Trade Organization was formally organized to deal with global rules of trade

between 123 nations, including the Philippines. The WTO rules encompassed

almost all commodities, including steel; and even services (WTO, 2005).

Exports as a Percentage of Global Finished Steel Production, 1990 - 2000

25.20%

27.40%

30.80%

34.50%

37.00% 36.80%35.30%

37.50%38.70%

39.70% 40.30%

0

100

300

400

500

600

700

800

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Million metric tons

20%

25%

30%

35%

40%

45%

Production Exports

200

%

AsianFinancial

Crisis

Source: IISI

Figure 19: Exports as a Percentage of Global Finished Steel Production

In

(Data: IISI, SEAISI)

Figure 19, except for the slowdown of exports as percentage of world

79

steel production between 1995 and 1997, it has regained momentum, which

commenced in 1990.

Table 9

: World/ASEAN Exports of Semi-Finished & Finished Steel, 1994-2000

Shown above is the tabulation of semi-finished and finished steel exports

of ASEAN countries plus other countries in Asia compared to the world (refer to

Appendix G le of raw data used to generate Figure 19).

Figure 19, global exports grew from a mere 25.2% of

global

Table 31, for the tab

Referring again to

steel production in 1990 and doubled in 2000. After the Asian Financial

80

Crises, although global production slightly dipped in 1999, however, the

percentage of global steel exports continued its rise.

PEC Study Centre (2003) reported, "…recovery from the crisis was

ut

A

generally slow in 1998 due to the slower than expected growth in exports b

picked up remarkably in 1999, largely due to a number of internal as well as

external factors." This phenomenon is also reflected in the global steel industry.

Table 10: World/ASEAN Imports of Semi-Finished & Finished Steel, 1994-2000

81

Shown above is the tabulation of semi-finished and finished steel imports

of ASEAN countries plus other countries in Asia compared to the world (refer to

Append

t

structural changes of international trade flows indicate modifications in

f

ix G Table 30, for the table of raw data used to generate Figure 20-22).

Motti and Sachwald (2006) emphasized that among 36 classifications

under the industrial sector worldwide, the growth of iron and steel industry

increased most steeply between 1990s and 2000s. Dachin (2006) noticed tha

competitiveness of developing countries, including the Philippines, in terms o

production, technological upgrading and exports under the pressure of

globalization.

ASEAN Imports of Semi-Finished & Finished Steel, 1991-2004

Indonesia

Malaysia

MyanmarPhilippines

Singapore

Thailand

VietNam

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

('000 metric tons)

AsianFinancial

Crisis

Figure 20: ASEAN Imports of Semi- and Finished Steel, 1991-2004 (Data: IISI, SEAISI)

82

ASEAN Steel Trade. Most ASEAN members imported semi-finished and

finished steel from various parts of the world then processed these semi-finished

steel to augment the domestic finished steel market.

Figure 20 illustrates that most ASEAN member-nations endured a slump

in imported semi-finished and finished steel during the Asian Financial Crises,

except for Viet Nam and Myanmar. Moreover, there was a resumption of steel

importation thereafter that slump. Interestingly, Indonesia only belatedly

continued steel importation in 2000, while Singapore had yet to recover.

ASEAN Exports of Semi-Finished & Finished Steel, 1991-2004

Indonesia

Malaysia

Philippines

Singapore

Thailand

Viet Nam

0.00

1.00

2.00

3.00

4.00

1991 1992 1993 1994 1995 1996 1997 1998 1999 2 2002 2003 2004

('000 metric tons)

000 2001

AsianFinancial

Crisis

Figure 21: ASEAN Exports of Semi- and Finished Steel, 1991-2004 (Data: IISI, SEAISI)

shed steel to ASEAN member-nations also exported semi-finished and fini

83

the res

xports fell during the Crises

and ha

t of the world. During the 1997-1998 Asian Financial Crises, however,

there was a tendency to dump these steel to other countries, thus exportation

increased. Interestingly, Figure 21, only Singapore’s e

ve yet to recover. Both the Philippines and Vietnam have a small steel

export inclination, which would pick-up only beginning 2002.

Exports as a Percentage of ASEAN Steel Production

27.1%25.3% 24.7%

25.5%

35.9%34.9%

32.4% 32.4%33.8% 33.6%

0

20

40

60

80

100

120

140

160

180

200

1994 1995 1996 1997 1998 1999 2000 20030.2

0.25

0.3

0.35

0.4

0.45

0.5

Millionsmetric tons Production Export %

2001 2002

AsianFinancial

Crisis

Source: SEAISI, IISI, PISI

Figure 22: Exports as a Percentage of ASEAN Steel Production (Data: SEAISI, IISI, PISI)

In contrast to the world scenario, in the ASEAN region, shown in Figure

22, export e 1997-1998 Asian Financial Crises, however, it

never regained that hig

increase. The increase in exports was due to the apparent need of steel mills to

s picked-up during th

h level even until 2002 although production continued to

84

unload products anticipating for a global economic slowdown, as noted above,

which unfortunately never yet came true.

Philippine Steel Trade. In 1986, CB Circular 1005 liberalized iron and

steel imports, subject to the required tariffs. Executive Order 470, known as the

Tariff Reform Program, rationalized the structure from 24 August 1991 to 01 July

1995 (see Appendix T: Steel Industry Tariff Schedule, 1991-2000).

Philippine Steel Trade vs NSC Production, ('000 mt), 1991-2004

Phil. Crude(right scale)

Phil. Imports(right scale)

NSC Crude

Phil Exports

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1991 97 1998 1999 2000 2001 2002 2003 2004

('000 metric tons)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0('000 metric tons)

1992 1993 1994 1995 1996 19

Figure 23: Philippines Steel Trade vs. NSC Production, 1991-2004 (Data: IISI, NSC, NSO, DTI-BETP)

Figure 23 shows that prior to the closure of NSC, the Philippine steel

imports shadow that of NSC’s. NSC was the biggest Philippine importer of iron

85

and steel raw materials—steel slabs, hot-rolled coils, including tinplates. Refer to

Appendix O: Philippine Steel Scenario in 1995. Imported steel abruptly increased

without NSC, then hovered at 3,000 metric-tons-per-year level.

Table 11: Philippine Steel Imports, metric tons, 1991-2004 (Sources: NSO and DTI’s Bureau of Export Trade Promotion)

Paltry steel exports, which began when NSC exported the first ever steel

products to United States and Europe in 1976 (NSC News, November 1976),

remained small until the surge in 2002, brought by the lowering of export tariffs.

Table 11 above shows the volume of Philippine steel imports. This table

was used to generate Figure 24 below.

Between 1991 and 1999, NSC was the sole importer of slabs in the

country. Philippine slab imports generally mimic the movement of NSC’s

86

production, as shown in Figure 24 below. Until 1998, hot-rolled coil imports

consistently about 200,000 metric tons per year dramatically rose to as much as

600,000 mtpy in 1999 and fluctuated within the 500,000 mtpy thereafter.

he

incentives

under Presidential Decree 1789 a

from April

1994 to March 1997 for dome

capital equipment and parts; 100% import tax and duty-free importation of capital

Figure 24: Philippines Steel Imports per Type, 1991-2004 (Sources: IISI, SEAISI, NSO, DTI-BETP, NSC)

For twenty years, NSC enjoyed considerable but dominant role in t

domestic market. Before NSC’s privatization, it was entitled to a lot of

nd the Iron & Steel Industry Act, such as:

partial Value-Added Tax exemption—20% up to March 1994 and 10%

stic sales and 100% for its export sales.

Furthermore, the Act granted 100% tax credits for the purchase of domestic

87

equipment and parts for its upgrading and expansion program; and accelerated

depreciation for the first ten years from the start of commercial operations of its

expanded mills (R.A. 7103).

NSC Raw Steel Imports. NSC imported slabs and HRCs, aside from

TMBPs, on spot market basis from different suppliers.

NSC Raw Materials Imports, 1988-2004

Slab

NSC Production

HRC

TMBP

0

100

300

400

500

600

700

800


200

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

AsianFinancial

Crisis

Figure 25: NSC Raw Material Imports, 1991-2004 Data Source: NSC

Figure 25 graphically show that slabs imported by the privatized NSC

declined prior to the Asian Financial Crises 1997-98.

88

NSC slabs came from China (Baosteel, Pangang, Anshan, Angang,

Jinan, Panzhihua, Wugang, and Wuhan) South Korea (Posco), Brazil (CST),

Australia (BHP), Mexico (IMEXSA) and Russia (NMK, MMK, Ilych).

MK, Ilych Steel, Anshan, POSCO, IMEXSA, CST, and later Australia’s

BHP, a

ck-plates (TMBPs).

he HRCs imported by NSC remarkably decreased in 1995 when it

-rolled coils, hot-rolled coils,

hot-rolled . It exhibited, however, a weak correlation to the

Philippine and ASEAN Semi-Finished and Finished (SF&F) steel imports (refer to

Append

N

lso supplied NSC with Hot-rolled coils. Japan’s Nippon Steel, Australia’s

BHP and South Korea’s POSCO) supplied tin-milled bla

T

brought Hot Strip Mill No. 2 into commercial operations, thus imported slabs

increased until 1996. Although, NSC’s attempt for slab supply agreements with

its various suppliers was frustrated in 1997, Hottick management was hopeful

that these would be completed as soon as the world steel industry recovers from

the effects of the crisis. Furthermore, importation of TMBPs declined starting

1992, when NSC closed its last tinning mill in Pasig to concentrate on its newly

installed ETL3 in Iligan City (NSC News Special Bulletin, 20 April 1998).

As mentioned before, Lamberte, et.al. (1999) found that capacity

utilization of firms decreased from July 1997, on the onset of the Asian Financial

Crises.

NSC flat carbon steel crude production shows a strong correlation to the

following factors: Philippine import volume of cold

plates, and tinplates

ix M).

89

Price E

first quarter

of a ye

lasticity of NSC’s Raw Steel Imports

Hottick’s NSC ordered replenishment of raw materials: slabs and Hot-

rolled coils on a quarterly basis, whereby raw materials needed for a

ar, maybe ordered a quarter or two the previous year, dependent on the

country source of material. The raw data used in the computation of price

elasticity for slabs and hot-rolled coils is included in the Appendix N.

NSC Slab Imports. From 1994 to 1999, about 15 steel manufacturers

supplied NSC with slabs from countries such as China, South Korea, Brazil,

Australia, Mexico and Russia through several traders or direct company sales

representatives.

SR-Sq

Slabs Fitted Line PlotQTY = 21190 - 10.16 PRICE

PRICE

QTY

275250225200175150

6326.220.4%

R-Sq(adj) 0.0%

Regression Line Plot (Data: NSC, Graph: Minitab 14)

35000

3

20000

0000

25000

15000

10000

Figure 26: Slabs Fitted

90

Using the confirmed purchase orders for quarterly deliveries to NSC, refer

to App

sing this demand curve (eq. 7), the elasticity coefficient was computed

using (

, Anshan, POSCO, IMEXSA, CST, and lately Australia’s BHP,

The that the data-pairs are sporadically

endix N, a fitted regression line through software, Minitab, Figure 26,

shows the relationship for slab:

Quantity = 21190 – 10.16 x Price (eq. 7)

U

eq. 6) in page 42, which yielded an average of –0.12, very price inelastic.

NSC Hot Rolled Coils (HRC) Imports. Similarly, from 1994 to 1999,

NMK, Ilych Steel

supplied NSC with Hot-rolled coils.

HRCs were usually ordered instead of slabs especially when the

difference between the latter and the former prices were minute. Common sense

prevailed, according to most NSC managers, because NSC’s conversion cost

from slabs to HRCs amounted to about $46/MT compared to the “Best-in-Class”

Hot Strip Mill, a difference of about $16/MT (Hatch Associates, 1996).

Using Minitab with data tabulated in Appendix N, Figure 27 below shows

the relationship for HRCs:

Quantity = 31082 – 41.5 x Price (eq. 8)

scatter plot, Figure 27, shows

91

distributed whereby a smaller Pearson coefficient was generated for these data-

stream compared to that of slabs’.

400

30000

10000

00

PRICE

QTY

290280270260250240230220

20000

0

S 9533.55R- 0.8%R- 0.0%

HRC Fitted Line PlotQTY = 31082 - 41.5 PRICE

Figure 27: HRC Fitted Regression Line Plot

ring it last

year in

ost will result to negative cost of production (COP) or

margin, HRC ordering is preferred, if its conversion to CRC COP is positive.

rve (eq. 8), the elasticity nt was

computed using (eq. 6) in page 42 which yielded an average of –0.50, very price

SqSq(adj)

(Data: NSC, Graph: Minitab 14)

A simple explanation to this distribution would be that NSC was

predisposed to order higher quantities of HRCs, rather than slabs, du

1999 prior to its eventual liquidation. NSC managerial executives pointed

out that if slab conversion c

Using this regressed demand cu coefficie

92

inelastic, meaning a small decrease in HRC prices might only lead to a smaller

increase in the HRC quantity ordered or demanded by NSC.

ase prices’ and ‘extras’. In general, eac h product form that it manufactures. For example, a producer of carbon steel cold-rolled sheets would specify a base

ice for that product. In addition, the producer specifies completely the range of ickness, width, and other properties that are covered by the base price. If a

requirements as cut-length (as opposed to sheets in coil form), special drawing

consideration. As a result, a producer often will adjust his price to match a

manufacturing variations. Discounts from the quoted price are often available.”

Generally, the demand for steel in the long-run is very price inelastic—

between –0.2 and –0.3 (Barnett and Crandall, 2002). The results of price

elasticity for NSC’s slabs at –0.12, and NSC’s HRCs at –0.50, although

accounted for in a short-run, i.e., 1995 to 1999, are consistent with the range of

long-run price elasticity of demand for steel.

Steel and Raw Materials International Pricing Trends

Steel Pricing. The US Geological Services published (Fenton, 2000) an

extensive narrative on metal prices and succinctly explained how steel products

are priced, stating:

“Ste bel products are priced by a system of ‘h producer specifies a base price for eac

prthcustomer’s requirements are for material thicker, thinner, wider, or narrower than the base range, an extra charge is added. Extras are also added for such

quality, small orders (e.g., less than 20,000 pounds of a single item), and other requirements, depending upon the product form. The cost of transportation from the producer to the customer is a significant

customer’s delivered price from a more proximate producer. When such an adjustment is made, the customer’s cost is the same, regardless of the location of the shipping mill; the result for the steel producer is a lower realized price when shipping to a customer located closer to another producing mill.

Steel prices are usually quoted by weight. For many products, however, there is a provision for calculating the weight of a shipment so that a customer is required to pay only for the theoretical weight of the product rather than the actual weight, which normally is more than the theoretical weight because of allowable

93

Alexander and Kalevar (2004) explained that the traditional approach to

determine changes in the price environment is to use a price index that

comprises several different types of steel.

Flat steel prices in the Philippines, being a minor steel player in the global

steel market, only follows that of prevailing prices pegged by integrated

steelmakers such as Japan’s Nippon Steel and South Korea’s POSCO, both

China dominates the

prices f

considered as Asia’s steel exports price-setters, while

or imports (Interview with Teresita Panganiban, 2007).

Flat Carbon Steel Monthly Index Prices, 1994 - 2000

pe

7

8

9

10

11

12

130

. . . . . . 99 .00

.00

Dec

.00

Inde

x Pr

ices

(199

4=10

0)

Asia

World

Euro

0

0

0

N. America

0

0

94 94 94 95 95 95 96 96 96 97 97 97 98 98 98 99 99

0

Apr

Aug

.

Dec

.

Apr

Aug

.

Dec

.

Apr

Aug

.

Dec

.

Apr

Aug

.

Dec

.

Apr

Aug

.

Dec

.

Apr

Aug

.

Dec

.

Apr

Aug

AsianFinancial

Crisis

Figure 28: Flat Carbon Steel Monthly Index Prices, 1994-2000 (Data: CRUspi Carbon Flats Index Prices)

94

Based on CRUspi index, Figure 28 above shows that although steel

prices reached it peak in the second quarter of 1995, a downtrend began in May

1997 and continued until January 1999.

Between the second quarter of 1995 to the second quarter of 1997, the

average steel index prices in Asia were greater than that of the world steel

prices, see Figure 28. The Asian Financial Crises brought down the steel index

prices in Asia, and indubitably the world steel index prices. World steel index

prices peaked again in the third quarter of 2000, but it was 25% lower than the

previous one in 1995. During this quarter, however, the steel index prices in Asia

were about ten points lower compared to the world.

prevailing ost NSC’s cold-rolled coils

(CRC)

equivalent currencies for foreign customers.

For the period of this study from 1995 to 1999, see Figure 28, steel index

prices exhibited a downward trend worldwide and in Asia, with the lowest point

registered during the first quarter of 1999.

Considine (2005) observed that despite robust demand growth during the

1990s, the North American steel industry faced mounting financial losses from

1999 through 2002 brought on by the Asian economic crisis of 1998 to 2000. As

a result, North American steel prices steadily declined from 1997 through 2001.

NSC’s CRC Production vs. Average CRC Prices. NSC’s products were

sold to various domestic and foreign customers. Domestic prices were based on

retail export Asian prices in US dollars. M

were usually sold to customers based on these retail prices, converted to

95

Sales of HRC were very minimal and sporadic, a former HSM QA

supervisor claimed, because most hot-rolled coils (HRC) produced at Hot Strip

Mill No. 2 were delivered to Cold Strip Mills for further processing. NSC was

more into selling CRCs and Tinplates to domestic markets rather than selling the

bulk of its HRC, according to another NSC executive.

CRC Average Price

CRC

Pc

rodu

tion

500450400350300250

60000

50000

2

40000

30000

0000

10000

0

S 11289.7R-Sq 44.1%R-Sq(adj) 43.2%

Scatter Plot with Regression Line

Figure Average CRC Prices

CRC prices based on the lowest

CRC Production = - 22855 + 148.9 CRC Average Price

29: Scatter Plot with Regression Line of NSC’s CRC Production vs.

(Data: NSC, Graph: Minitab14)

The Pearson correlation of cold-rolled coils (CRC) Production and CRC

Average Price is 0.664. The Scatter Plot in Figure 29 illustrates that CRC

production is positively correlated to average

96

and highest published retail prices.

NSC price strategy, according to a former NSC senior manager, is import

parity pricing scheme—products are priced not higher than the landed cost

equivalent imported steel products. Landed cost of imported steel is equivalent to

FOB cost and freight multiplied by some factors—foreign exchange rates, bank

charges and insurance, custom duties, value-added taxes, and handling charges.

2001)

noted a fast pace of restructuring

industr

capacity for other steels. For ASEAN, Koda,

NSC domestic market price would then be equivalent to the landed cost of

imported steel material less discounts/incentives.

In totality, NSC monthly flat carbon steel production shows a significant

correlation to the following monthly steel prices: Global, Flats, Asia, and North

American Steel Price indices. Quarterly NSC (CRC) production is positively

correlated to all Steel Price Indices, but show high significance of correlation to

Asia Flats and Global Steel price indices.

Summary: NSC Production versus External Factors

World/ASEAN Steel Supply (Capacity). Katrak (2002) observed that

world steel capacity was ruled by consolidation and deregulation. Payne (

and consolidation for West European steel

y during the last several years prior to 2000, while Weston (2002) reported

a lackluster progress in North America.

By 2000, Woetzel (2002) noted an undersupply of world’s flat steel

capacities, while there was an over

97

et. al.

ibited only a meager 3% growth.

nly Thailand and the Philippines decreased their respective hot-rolled

on, however, NSC crude

produc

(1995) observed that self-support ratio between capacity expansion and

steel demand increase over time, but a situation of lack of supply capacity in

ASEAN will continue until the year 2005.

For the Philippine scenario, only NSC has a hot-rolling production

capacity from 1985 to 1999. Its hot-rolled capacity was increased from 0.5mtpy to

1.7mtpy in 1995, the Phase II-A of its Five-Year Expansion Program.

World/ASEAN Steel Supply (Production). The World steel supply

(production), including ASEAN increased over time.

Taccone (2006) reported that the world steel supply recovered a 6%

growth after 1998, the last year of the Asian Financial Crises, from the 1979-

1998 “an aberration” when the industry exh

O

production starting in 1996. On a year-on-year comparis

tion started its decline in 1994.

Table 12: Summary of Correlation of NSC Production and World, ASEAN and Philippine Supply (Production)

98

The data summarized in Table 12 shows that there is no significant

correla

the Philippines apparent

consum

per

capita (

NSC Production and World, ASEAN and Philippine Demand (Apparent Consumption per Capita [ACC])

tion between NSC crude (hot-rolled and cold-rolled coils) production and

the Philippine crude, ASEAN and World crude production. Thus, the null

hypotheses are not rejected, respectively

World/ASEAN Steel Demand (Consumption): In terms of apparent

consumption per capita (ACC), in kilograms,

ption hovered at 45kg per capita, almost one-fifth that of the averaged

ASEAN at almost 200kg per capita; or one-third that of the World at 132kg per

capita. During the Asian Financial Crises 1997-98, the apparent consumption

ACC) the world over, including ASEAN, decreased.

Table 13: Summary of Correlation of

NSC crude production, particularly cold-rolled coils, refer to Table 13,

shows a highly significant correlation to the ASEAN apparent consumption per

99

capita

C Production and World, ASEAN and Philippine Demand (Apparent Consumption of Finished Steel [ACFS])

(ACC). In comparison to the World and Philippine demand, particularly

ACC, these factors are not significantly correlated to NSC production.

Table 14: Summary of Correlation of NS

Similarly, as shown in Table 14, NSC crude production is also

significantly correlated to the ASEAN apparent consumption of finished steel

are also not significantly correlated to NSC production.

hilippines’ Raw Steel Imports: The HRCs imported by NSC

remark

(ACFS). Moreover, the World and ASEAN Demand, represented here as ACFS,

Incidentally, the Philippine steel intensity was steadily climbing since

1984, but wavered in 1994 as a reaction with the then impending privatization of

NSC. The trend recovered until 1996 and for the successive years circled

between 1998 and 2001.

P

ably decreased in 1995 when NSC brought Hot Strip Mill No. 2 into

commercial operations, thus imported slabs increased until 1996.

100

Table 15: Summary of Correlation of NSC Production and Raw Materials (Semi-Finished and Finished [SF&F]) Imports

Furthermore, NSC production data is not significantly correlated to the

Philippine, ASEAN and World semi-finished and finished (SF&F) steel imports,

respectively.

nt with the range of

long-run price elasticity of demand f

e import prices of these raw materials were

low, the quantity demanded by NSC of these input steels remained low.

ion to the

following monthly steel prices: Global, Flats, Asia, and North American Steel

Price Elasticity of NSC’s Raw Steel Imports. The results of price

elasticity for NSC’s slabs at –0.12, and NSC’s HRCs at –0.50, although

accounted for in a short-run, i.e., 1995 to 1999, are consiste

or steel, between –0.2 and –0.3 (Barnett and

Crandall, 2002).

The price inelasticity of both NSC’s imported slabs and hot-rolled coils

suggests that even if the respectiv

Steel and Raw Materials International Pricing Trends. NSC flat carbon

steel production shows, refer to Table 16, a highly significant correlat

101

Price indices, respectively.

Table 16: Summary of Correlation of NSC Production and Steel Index Prices

Similarly, NSC production is highly, significantly correlated to most of the

averag

The Pr

rom one

administration to another. Henares (2006), who chronicled the Philippine steel

industr

e import prices for both hot-rolled and cold-rolled coils. Quarterly NSC,

especially cold-rolled coils production, is also significantly correlated to all Steel

Price Indices, but show higher correlation to Asia Flats and Global Steel price

indices.

ivatized NSC, 1994 - 1999

Support for the steel industry might be gleaned from the Philippine

government’s policy toward the establishment of the steel mill changed f

y from its aborted birth in 1950s to its tumultuous events in early 1990s,

stated that the government acted as the investment pioneer of the steel mill

under President Magsaysay. The steel industry became a joint venture

102

arrangement under President Garcia. President Diosdado Macapagal totally

handed over the project into private hands. Under Marcos’ martial rule, it

86,

retain as much as 30% of NSC’s shares, another 30% sold to the public and

remain

ial advisors to study the mechanics of the privatization plan. (NSC

News, April 1991)

sumed as president in May 1992, with his

“Philippines 2000” vision, he embarked on a pro-business and free market-

oriented government and pushed for the privatization of strategic public assets,

particularly NSC (NSC News, June 1994). Ramos encouraged greater private

sector participation in the economy, for substantial share of that sector in the

country’s growth and prosperity. Furthermore, he acknowledged (NSC News,

June 1994) that steel being essential to modernization, a relatively advanced and

cost-effective iron and steel industry was vital to the attainment of “Philippines

confiscated and seized the steel industry. After the EDSA People Power in 19

President Aquino ordered privatization all over again.

From 1990 to 1996, privatization of state-owned enterprises became a

phenomenon in both industrial and developing countries (The Economist, 22

March 1997). As early as 1990, talks about NSC’s privatization surfaced to NSC

employees’ consciousness (Longakit, 1990) with the government intending to

der auctioned off to big investors. Later, in 1991, a revised proposal that

twenty-five (25%) percent of National Development Company (NDC) shares were

to be offered to the public, primarily Filipino investors, and employees of NSC

and NDC. NSC’s mother company, NDC, even hired SGV and Morgan-Grenfell

as financ

When Fidel V. Ramos as

103

2000,” purportedly the collective national vision of the Philippines reaching newly

industrializing status by the year 2000.

Ramos approved selling 51% of government’s stake in NSC on 11

September 1992, based on Proclamation No. 50 under the Aquino government

manda

r output, lower leverage, and higher dividends, and as an

added

ting the privatization program for government-owned and controlled

corporations (NSC News, September 1992, p. 3). The consortium of All Asia

Capital and UK’s Barclays de Zoete Wedd was selected as NSC privatization’s

financial advisor tasked to formulate, develop and assist in implementing a plan

within a specific timetable. Pittsburgh-based Beddows and Co. and SGV Law Co.

reinforced the All-Asia and Barclays team as consultants (NSC News, July 1993).

Incidentally, later studies such as Megginson, Nash, and van

Randenborgh (2004) presented strong evidence from 61 firms in 12 industrial

and 6 developing countries, and thirty-two industries privatized in 1961-90 that

indeed this new phenomenon offered higher profits, greater efficiency, more

investments, highe

bonus, increased employment. A similar study, (Boubakri and Cosset,

1998), considered 79 newly privatized firms, headquartered in 21 developing

countries, that experienced full or partial privatization during the period from 1980

to 1992, showed exactly the similar results.

On 31 January 1994, (NSC News, March 1994), from the eighteen (18)

prospective investors, four (4) groups were pre-qualified to participate in the

public bidding of 65% ownership of NSC, namely: Malaysian Wing Tiek Holdings

Corp. Berhad, India’s Nippon Denro Ispat Ltd., Exchange Capital Corp.

104

Consortium and AIA Capital Corp. Consortium. NDC selected Wing Tiek’s

proposal to acquire 55% NSC’s primary shares for P12.375 billion, and the

former

compa

investment was aborted due to the

fortuito

signed memorandum of understanding on 12 October 1994 in the

presence of Pres. Fidel V. Ramos and Malaysian Prime Minister Mahathir (NSC

News, October 1994).

Former NSC Chairman and CEO Luis M. Mirasol, Jr. in an interview with

NSC News explained that Wing Tiek Holdings Berhad, composed of seven

subsidiaries. It was involved in the importation, exportation, and stocklist of steel

materials, aside from manufacturing wire mesh, cold-drawn mild steel and

stainless steel shafting bars, steel pipes and tubes. It is also an associate

ny of the Westmont Group (NSC News Supplement, December-January

1995).

Wing Tiek’s NSC embarked on the continuation of the Five-Year

Expansion Program, designated as FYEP Phase II-A, which was completed in

the second quarter of 1995. FYEP II-A included the upgrading of 4-Stand

Tandem Mill electrical controls, the modernization of 5-Stand Continuous Mill

automation, the installation of the Acid Regeneration Plant to serve the new

Pickling Line No. 2, and Hydrogen Batch Annealing Furnaces (NSC News

Supplement. August 1995). The last capital

us events: Wing Tiek sold NSC to Hottick, which had changed priorities.

In 1996, the Manufacturing Systems department (Noynay, 1996) rolled

out the Production Tracking System under the Manufacturing Automation System

Level 2, hereafter referred as PTS-MASS2, to replace the existing 1987-installed

105

Unisys A-Series mainframe-based Production Control System. The PTS-MASS2,

consisting of three (3) modules: Material Tracking, Quality Tracking, and Mill

Condition Monitoring, provided basic information infrastructure supporting the

production management of Cold Strip Mill and ETL3; linked to Level 2 (mill

process computers) and Level 4 (Production Planning and Finance) systems and

provide

quarter of 1996, NSC’s ownership changed hands from Wing

Tiek to

d data to the Computerized Maintenance Management Systems for mill

delay monitoring. (Note: The four level hierarchies was conceptualized at Purdue

University as a model of Computer Integrated Manufacturing and adopted by

many modern steel mills. Level 1 handles direct automation, Level 2 for process

modeling, Level 3 for mill area supervisory control and Level 4 encompasses the

business systems).

On the last

Hottick after the former’s failure of adhering to its original agreement with

NDC—the sale of additional 12.5% block of shares in NSC to the public. Private

ownership increased from 54.5% in November 1994, and then up to 74.5% in

September 1996 after WingTiek paid P3.9Billion for an additional interest,

however, it was effectively reduced to 69.2% when Wing Tiek issued new shares

to Marubeni. When Hottick took over Wing Tiek’s 69.2% NSC stake in December

1996, it also assumed NDC’s 12.5% thus bringing Hottick’s total NSC share to

81.7% by February 1997, see Appendix E: Transactions for NSC’s Stake (1995-

1998). Unfortunately, noted some management staff, all these capital infusion did

not benefit NSC but rather it went to NDC’s coffers and other shareholders.

During a presentation of unaudited financial records for 1997, Tom L.

106

Galanis, NSC’s Chief Operating Officer, highlighted three things: the incurrence

of huge deficit attributed to foreign exchange and loan interest; the dumping of

steel products from Russia and Korea affected NSC’s market share; and the

negative cash flows because of loan payments (WEB: Workers Empowerment

Bulletin, 24 March 1998).

Moreover on 20 April 1998, NSC’s COO Galanis issued a General Memo

announcing an “absolutely non-voluntary” streamlining, a continuation of the

previous year, to achieve organizational—administrative and operational—

efficiency. A month later, it closed the remaining operational Pasig tinning mill,

ETL2, citing that its operating fixed costs far outweighed its projected revenue;

and that with the continuous decline of NSC’s market share for tin plates, the

ETL3 i

hich

amend

n Iligan could readily absorb the limited demand (NSC News Special

Bulletin, 20 April 1998).

The privatized NSC, from Wing Tiek to Hottick era, might prove to be the

exception to the popular results of aforementioned studies, whereby on 15

December 1998, NSC appealed to President Estrada for its survival in a “Position

Paper re: Tariff Adjustments” citing the effect of the Asian financial crises to its

bottom line (Navarro and Bidin, 1999).

It was only in August 1999 that President Estrada signed Republic Act

No. 8752, or the Anti-Dumping Act of 1999. R.A. 8752 provided the rules on the

imposition of duties on cheap, imported goods that threaten local industries

producing the same products. Furthermore, Estrada also signed RA 8751, w

ed Section 302 of Presidential Decree 1464 or the Tariff and Customs

107

Code. The amendments provided for countervailing duties will be slapped on

imported subsidized products that upon the Tariff Commission’s determination

cause material injury, growth retardation or prevention of the establishment of an

affected domestic industry (Manila Bulletin, 13 August 1999)

Even Senator Juan Ponce Enrile echoed the same position in his Senate

Resolu

. Meanwhile, Hottick taking over NSC from Wing Tiek in

1996 a

tion 650 that while the privatization of the NSC was envisioned as a major

foreign investment that promised efficient management and operation of NSC the

outcome was opposite (Echeminada, 2000).

Many NSC managerial staff commented that the resulting privatization of

NSC failed to run the basic steel business because of short capital to reinvest in

raw material sourcing. NSC was managed by Wing Tiek from 1994 to 1996 who

were essentially steel traders thus not very much cognizant of the steel

manufacturing essentials

dopted a close-door type of management, which resulted to local

creditors’ mistrust; hence unwilling to acquiesce for more financing (various

interviews, 2007; refer to Appendix HH).

1995-1999 NSC Production Rate

NSC Production Rate is dependent on the rated capacities of various

facilities. All facilities were upgraded during the two phases of NSC’s Five-Year

Expansion Programs (refer to Table 4 above, on page 59).

NSC’s Production Rate was conventionally computed as the ratio of

108

processed tonnage over the net operating hours. Effective or Net Operating

Hours is equivalent to the Gross Calendar hours less ancillary and non-ancillary

delays. Figure 30 shows the computation of Net Operating Hours (NSC, 1998m).

Figure 30: NSC Plant Availability and Utilization Computation (Source: NSC, 1998m)

Ancillary delays, charged as non-operating hours, included no operations

or scheduled mill stoppage, maintenance downturn or servicing, annual

maintenance shutdown. The Nerve Center and Production Planning issued

uding days of no scheduled operation, based

on ma

Annual Maintenance

Shutdo

for critical production lines or when the recurrence of delays cannot be ignored;

weekly plans for mill production, incl

rket projections. Maintenance downturns and servicing, scheduled by

Maintenance Planning department, allotted certain days for each respective line

on a revolving schedule with designated frequency.

wn was usually scheduled after a certain production volume was reached

109

that correction could only be done if the respective production line was totally

brought offline. During these annual shutdowns, Design-out Maintenance

activities were usually included, carried out by a Central Repair Group and

almost all the major equipment and respective components were sent to various

Mechanical and Electrical Shops for rehabilitation to their respective maximum, if

not original, capabilities. For each respective line, Operational Ancillary Delays

were also designated which included back-up roll change, change/inversion of

knives, preheating or certain activities that were essential for mill setup.

Non-Ancillary Delays were categorized into Operational, Electrical,

Mechanical or Miscellaneous delays.

Operational delays consisted of meal break, equipment or line inspection,

dry run, processing difficulty (welding delays, process testing, quality inspection,

strip break and rethreading) to name a few.

Ele ys included failure of electrical equipment and

control

ctrical Maintenance dela

s, and troubleshooting, repair or replacement of defective electrical and

process control systems.

Mechanical Maintenance delays included breakdown of mechanical

equipment, and troubleshooting, repair or replacement of malfunctioning

mechanical, including pneumatic and hydraulic, systems.

Miscellaneous delays consisted of all others that cannot be classified

under the first three aforementioned delays, e.g., power failure or fluctuation

charged to Electrical Power Distribution, no available steam or compressed air

110

charged to Central Utilities, unscheduled roll changes charged to Roll Shop, or

out-of-order OHTC charged to Crane Repair Group.

Shift delays were encoded to the Computerized Maintenance

Management System (CMMS). These were then monitored, collated, and

analyzed by the Cold Strip Mill’s Maintenance Information Systems of the

Maintenance Planning department, as to their effect on productivity, mill

availability and utilization.

Pickling Lines' Production Rates (1995-1999)

25

55

85

105 70CSM Total Production (MT) [right scale]PKL1 Actual Production Rate (MT/hr)

95 PKL2 Actual Production Rate (MT/hr)

10

20

30

60

Ts

40

50hous

and

65

75

35

45

0J FMAMJ J ASOND J FMAMJ J ASOND J FMAMJ J ASOND J FMAMJ J ASOND J FMAMJ J ASON

1995 1996 1997 1998 1999

Figure 31: Pickling Lines’ Production Rate MT/EOH (1995-(Data: NSC)

1999)

Although it was reactivated in January 1995, unfortunately, Pickling Line

No. 1 was intermittently operated beginning October 1996 because of recurring

111

delays caused by deteriorated pickling tanks and fume exhaust system coupled

with a problematic tension leveler, and ultimately stopped production exactly the

followin

as the traditional perception of impossibility in

g year.

The Cold Strip Mill of NSC was comprised of 14 mills and process lines

(see Appendix C). From 1995, it was the accustomed practice that respective

production rates were computed each mill and on per line basis. Among the

operations staff, there w

determining the Cold Strip Mill’s production rate as a single entity—as opposed

to Hot Strip Mill’s continuous configuration. Thus, the Effective Operating Hours

of Pickling Line No. 2 formed the basis of this study; see Figure 31, as the input

mill for all HRCs coming from Hot Strip Mill No. 2. PKL2’s production rate as

basis, however, gives an approximate manner of relating this factor to CRC

production.

Table 17: Correlation of NSC Production and monthly NSC's Production Rate

on is positively

correlated (0.633) to monthly Production Rate. There is sufficient statistical basis

that Production Rate and NSC Production are significantly correlated. In fact,

correlation is highly significant, p-value = 0.000 < 0.05 (also <0.001).

One manager suggested that instead of production rate, the mill utilization

Data shows, refer to Table 17, monthly NSC producti

112

would be a more relevant quantity to correlate with NSC production, refer to

Appendix U for this exposition.

1995-1999 NSC Material Yield

NSC Material Yield is a function of input and output weights of materials

processed in various mills. Respective material yields are also computed per

processed coil for each processing line, but for the Quality Assurance

department’s monthly report, Material Yield is computed by comparing the HRC

weight from Pickling Line No. 2 versus the output weight of the finished product—

full hard or annealed coils (see Appendix C).

NSC CRC Material Yield, 1995-1999

87

89

91

93

97

85J FMAMJ JASONDJ FMAMJ JASONDJFMAMJ JASONDJFMAMJ JASONDJFMAMJ JASOND

1995 1996 1997 1998 1999

95

99% MY

20

30

40

50

60'000 metric tons

ProductionActual MYStandard MY

0

10

Figure 32: NSC CRC Material Yield vs. Production, 1995-1999 (Data: NSC)

113

The Material Yield is computed from the input weight less the off-gauge

head-end and tail-end scraps; squaring-off prior to welding the coil ends, and

side-trimmings at Pickling Lines and Coil Preparation Lines. Low Material Yields

because of severe material damage during

handlin

month. The shift was evident at the

start of 1997 after the Quality Assurance department, as mandated by top

were occasionally experienced

g and storage; telescopicity beyond customers’ specifications; or in the

event of loose coiling, which would lead to total or partial collapse of coils.

Actual Material Yield, in percent, Figure 32, lingered at 90% from January

1995 to December 1996, usually higher than the standard yield for each month.

From January 1997 to until NSC closed, however, actual Material Yield

tended to go above the standard set for each

management, revised the manner of setting material yield standards based on

previous campaigns instead of using variance standards “anchored on theoretical

computations” (Que Estevez, 1997).

Table 18: Correlation of NSC Production and monthly NSC Material Yield

slowdown

Data shows, refer to Table 18, a highly significant correlation (p-

value=0.001 ≤ 0.05, also ≤ 0.01) between monthly NSC production and monthly

Material Yield. As such, aiming for higher Material Yield could result to a

in NSC production.

114

1995-1

onthly

report,

coils (r

999 NSC Prime Yield

NSC Prime Yield is also a function of input and output weights of

materials processed in various mills; however, croppings and quality defects are

subtracted for each processed material.

The same with Material Yield, NSC Prime Yields were also computed per

processed coil for each processing line, but for the Quality Assurance m

Material Yield was computed by comparing the HRC weight from Pickling

Line No. 2 versus the output weight of the finished product—full hard or annealed

efer to Appendix C).

NSC CRC Prime Yield, 1995-1999

80

82

84

86

90

94

96

J FMAMJ JASONDJ FMAMJ JASONDJFMAMJ JASONDJFMAMJ JASONDJFMAMJ JASOND

% PY '000 metric tons

10

20

30

40

50

60ProductionActual PYStandard PY

92

88

0

1995 1996 1997 1998 1999

Figure 33: NSC CRC Prime Yield vs. Production, 1995-1999 (Data: NSC)

115

The actual Prime Yield for each month, Figure 33, from January 1995 to

Decem

Similar to the Material Yield, a shift was

also vis

ng, its root-cause analysis and occurrence reduction.

should also be noted that in 1997, a Breakthrough Action Team for

ber 1996 hovered less than the standard Prime Yield per month. Prime

Yields on the last year of NSC’s production were skewed to higher percentages

because of smaller volume of production.

ible starting January 1997 when the actual Prime Yields went beyond the

standard Prime Yield. The 1997 Prime Yield Standard commitments (Que

Estevez, 1997) were derived using the 1997 Material Yield commitments less the

1997 proposed maximum downgrading, which is based on the actual January to

September 1996 downgradi

It

Yields Improvement was formed with Quality Assurance heads of various

facilities of NSC plus a Union representative, as Area Champions. The team’s

objective was to increase material and prime yields of various products using

material-balance flowcharts. Mill abnormalities were analyzed for possible

causes, and respective action plans were programmed for implementation.

Table 19: Correlation of NSC Production and monthly NSC's Prime Yield

of

NSC flat st .

Data shows, refer to Table 19, that NSC production is not significantly

correlated (p-value=0.788 > 0.05) to the monthly Prime Yield. Consequently,

increasing the Prime Yield would not necessarily mean a change in the volume

eel production

116

1995-1

customers for the advancement of our stockholders, our fellow employees, our

999 NSC Product Quality

Product Quality and customer after-sales service were paramount to the

privatized NSC. In 1995 (NSC News, 3 Aug 1995), it adopted a slogan: “New

NSC: A Partner You Can Rely On”, later known by its acronym: PYCRO and

incorporated this in its NSC’s Corporate Vision, which specifically state:

“to survive we must produce and market our products which are world-class in quality, cost efficient, reliability, timely delivery and price in partnership with our

dependents and ourselves and in the process to enjoy our endeavours.” “A Partner You Can Rely On.” (Italics in the original)

Yearly Trend of NSC Customer Complaints , 1988-1999

NSC Production

1.71.6

1.82.1

2.12.4

1.7

1.2

0.90.9

1.31.2

0

100

200

300

500

0.5

1.0

1.5

2.0

2.5

600

700

800


3.0%CC/FG

400

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999-

Asian

CrisisFinancial 1988-1994 Mean: 1.3%

1995-1999 Mean: 2.0%

Figure 34: Yearly Trend of NSC Customer Complaints, 1988-1999 (Data: NSC CSM-QA)

117

Historically, Figure 34, prior to its privatization, NSC’s customer

compla

A former Quality Assurance supervisor explained that the uptrend of

custom bly be

explain es starting in

1993. The fluctuating dr 99 was in reaction to

lesser goods sold to customers.

e Can

Industrial Corporation, Italit, and Phoenix Iron & Steel Corporation. Most of these

interviewed customers claimed problems with late deliveries

competitive yet reasonable pricing and high prime yields, but criticized some

quality problems like waviness, flatne tensile strength. William J.K. Leong,

Wing Tiek’s NSC Executive Vice President & COO, urged NSC to take active

steps and make others participate in the organizational change (Andersen and

SGV Consulting, 1995).

month in te quality defects but no attempt was made to

ints amounted to about 1.3% of the total Finished Goods (the bulk of

which was cold-rolled coils) sold. This yearly average peaked to 2.0% between

1995 and 1999. On a monthly basis, customer complaints peaked at 2.75% of

Finished Goods sold in April 1995.

er complaints between 1993 and 1996, see Figure 34, could possi

ed by the trade import liberalization pursued by the Philippin

op of complaints from 1997 until 19

A management conference on “Challenges Facing NSC” highlighted

customer’s comments on NSC product quality, product pricing, technical

assistance and after sales service. Among the customers interviewed were from

Philsteel Coating Corporation, Bacnotan Steel, Oriental Tin Can, Philippin

, noted the

ss, and

During Wing Tiek’s era, customer complaints were summarized per

rms of major product

118

connec

ity (NSC, 1996q).

in all aspects” (see Appendix X: Cold Strip Mill

Vision

ished goods tag’s information different from actual coil’s

parame

t these complaints to the actual production dates.

From the start of 1995, CSM Quality Assurance closely monitored five

quality parameters—thickness (dimensional measurement and sheetage for

galvanized iron applications), shape (flatness), formability for pre-painted

application, hardness and edge qual

When Hottick took over the management reins in 1996, with the ISO

9002:1994 certification already on its second year, top management issued a

Corporate Quality Policy (see Appendix W). Subsequently, this triggered the

revision of respective Quality Policy of each division, notably that of Cold Strip

Mill, which incorporated “quality

and Quality Policy).

Thus, aside from Prime Yield and Material Yield, Cold Strip Mill’s QA

department added another measure of quality: the Customer Acceptance, in

percent, equivalent to 100% less percentage of customer complaints against

products sold. Customer complaints were categorized into operations-, material-,

and handling/storage-related for both regular and developmental products. The

complained products, after a thorough investigation by Process Quality

Engineers including ocular inspection at site, were downgraded, refunded or

replaced. Some complaints—low sheetage (less number of sheets per coil

versus customer’s norms), over gauge (strip thickness exceeds specifications),

mis-tagging (attached fin

ter/s) or under gage (strip thickness below specifications) products,

however, were negotiated.

119

By the first quarter of 1996, customer complaints were collated each

month

continually updated (refer

to App

in percent was then computed as the product of the

percen

and correlated with actual period of production. As customer complaints

were distributed during the succeeding months—say, for customer complaints

filed with NSC in January, the QA department backtracked the actual date when

each coil was produced—the total for each month were

endix Y: Customer Complaints, 1995-1999). Backtracking also revealed

the age of products sold. Unfortunately, with the retrenchment of all employees

including the managerial staff in November 1999, customer complaints’ reports

for the last two months of that year remained unfiled (Interview with J. Roa,

2008).

A real Prime Yield

t Customer Acceptance (%CAR) and the nominal Prime Yield prior to

product purchase. The difference between the real and nominal Prime Yield

revealed the inspection efficiency of each lines’ quality assurance inspectors

(Interview with N. Vicente, 2008).

Using Statistical Process Control methods, process capability indices

were also plotted for each rolling mill: 4-Stand Tandem Mill and 5-Stand

Continuous Mill, in addition to frequency distribution charts, time series graphs,

and the like. Comprehensive analyses, using these SPC-generated graphics,

were done through ANOVA and itemized defect-root cause-contribution

produced respective action plans addressing these quality problems (NSC,

1996q).

120

NSC % Customer Acceptance, 1995-1999

80

90

95

100

105

85

JFMAMJ JASONDJFMAMJ JASONDJFMAMJ JASONDJFMAMJ JASONDJFMAMJ JASOND

% PY, % CA

10

20

30

40

60'000 metric tons

ProductionPlant %PYCustomer Acceptance

0

50

1995 1996 1997 1998 1999

Figure 35: NSC's % Customer Acceptance, 1995-1999 (Data: NSC Quality Assurance Monthly Reports, 1995-1999)

Figure 35 shows a high acceptance rate for NSC products at customer’s

end even when production waned towards the fourth quarter of 1999. Evidently,

the cus

ent and personnel successfully brought the customer complaints to

less than 1% in succeeding months.

tomer acceptance of NSC’s CRCs started to fall in January 1998, when it

decided to close ETL2 in Pasig that month, even reached a low point in May

1998. Interestingly, the undulations in customer acceptance occurred during the

second year of the Asian Financial Crises 1997-98.

From the aforementioned peak of 2.72% in April 1995, apparently the top

management’s prior directives plus the concerted efforts of production

managem

121

Monthly Trend of NSC Customer Complaints, 1995-1999

0

1

2

3

4

5

6

7

J FMAMJ JASONDJ FMAMJ JASONDJ FMAMJ JASONDJ FMAMJ JASONDJ FMAMJ JASOND

1995 1996 1997 1998 1999

% CC/FG

0

10

20

30

40

50

60'000 metric tons

Production%CC/FG

Asian Financial Crisis

Figure 36: Monthly Trend of NSC Customer Complaints, 1995-1999

Table (Percent Customer Acceptance Rate, %CAR)

(Data: NSC Cold Strip Mill Quality Assurance)

Figure 36 shows, however, that customer complaints came vigorously on

the second year of the Asian Financial Crises 1997-98. Several Process Quality

Engineers interviewed claimed that customers then were choosier and preferred

more quality products than ever before. The complaints abated during the last of

NSC’s productive months.

20: Correlation of NSC Production and monthly NSC's Quality Rate

122

Data shows, refer to Table 20, that there is a positive correlation (0.327)

between the monthly NSC production versus Quality, or % Customer Acceptance

Rate (%CAR). There is sufficient statistical evidence to conclude that Quality, in

terms of % Customer Acceptance Rate (%CAR) and NSC Production are

significantly correlated, (p-value=0.013 ≤ α). Thus, as % Customer Acceptance

Rate increases, monthly NSC production has a tendency to increase as well.

Summary: NSC Production versus Internal Factors

Monthly Production Rate: Data shows monthly NSC production is

positive, highly and significantly correlated to monthly Production Rate, using the

Effective Operating Hours of Pickling Line No. 2 as basis. Note that PKL2 is the

m January 1995 to December 1996. From 1997 to

1999, however, actual Material Yield tended to go above the standard set for

input mill for all HRCs coming from Hot Strip Mill No. 2.

Monthly NSC Material Yield: Data shows that there is a negative, highly

significant correlation between NSC production and monthly Material Yield. As

such, aiming for higher Material Yield could result to a slowdown in NSC

production. Actual Material Yield, usually higher than the standard yield for each

month, lingered at 90% fro

each month.

Monthly NSC Prime Yield: The actual Prime Yield for each month, from

123

Januar

eptance Rate:

There

l Crises 1997-98. Data

shows that there is a positive, significant correlation between monthly NSC

produc

he insecurity among NSC employees dragged on for four years,

2000 to 2004, and then a glimmer of hope was provided by a foreign steel entity,

Global

y 1995 to December 1996 hovered less than the standard Prime Yield per

month. Prime Yields on the last year of NSC’s production were skewed to higher

percentages because of smaller volume of production. Furthermore, data shows

that NSC production is not significantly correlated to the monthly Prime Yield, or

succinctly, aiming for higher Prime yield would not necessarily mean a

substantial change in NSC Production volume.

Monthly Quality, in terms of Monthly Customer Acc

was a high acceptance rate for NSC products at customer’s end even

when production waned towards the Q4 of 1999. Customer acceptance of NSC’s

CRCs started to fall in January 1998. The fluctuations in customer acceptance

occurred during the second year of the Asian Financia

tion versus Quality, or % Customer Acceptance Rate; meaning as

%Customer Acceptance Rate increases, monthly NSC production has a

tendency to increase as well.

Events and Emerging Trends in 2000 and Beyond

Globalization escalated in 2000, while NSC status was clouded with

uncertainty. T

Steel Holdings, Ltd. (GSHL).

124

Although there was virtually no flat steel production during this period,

events following NSC closure would be essential to understanding the

resurrection of NSC in 2004 as GSPI and the foregoing recommendations.

NSC on Liquidation, 2000 – 2004

The Liquidator’s phase in NSC history officially began in 07 May 2000,

when all employees of NSC were retrenched, thus there was no management

and the

uidation of the steel firm in 03 October 2000. The

SEC-appointed interim receivership committee (IRC) headed by Monico Jacob

ays. (The Philippine Star,

10 Nov

a bid to stop the liquidation of the firm.

NSC Board of Directors ceased to function. Between November 1999

and April 2000, many employees—managerial staff and most employees with 15

years or more tenure—opted for early retirement.

Meanwhile, the Interim Receivership Committee (IRC), appointed by SEC

on 21 December 1999, was commissioned to preserve the existing assets then

and if the feasibility of continuing the basic business NSC is determined, to

instigate a rehabilitation plan. SEC Chairman Lilia Bautista, a former

undersecretary of Department of Trade and Industry thus Corporate Secretary of

NSC in 1980s, ordered the liq

has been ordered to submit a liquidation plan in 60 d

ember 2000)

Rommel Ynion wrote in a national newspaper (The Philippine Star, 17

October 2000) that Hottick Investment Ltd threatened to drive overseas Filipino

workers (OFWs) out of Malaysia in

125

Further

isting

laws, rules, and regulations." De Castro claimed that SEC could only order the

as been proven, among other things, to be:

inactive

by its president Simplicio H.

Villarta

ents (The Philippine Star, 21 January 2000).

P

more, lawyer Arturo de Castro, NSC counsel, added, "Under the

Corporation Code, the jurisdiction of the Securities and Exchange Commission to

order involuntary dissolution is limited only to the grounds provided by ex

liquidation of any corporation if it h

for at least five years, guilty of committing illegal acts or illegally

organized (The Philippine Star, 10 November 2000).

Undaunted by the steel firm’s liabilities estimated at around P16 billion in

2000, SEC claimed that six Arab-Chinese investors have expressed interest in

buying NSC. The National Steel Labor-FFW led

Jr., however were concerned: "if NSC would be sold at a price less than

its outstanding debts the workers claim will be truly jeopardized" (The Philippine

Star, 17 October 2000).

Between 2000 and 2004, a succession of offer-proposals were brought

forth to resolve the NSC issue.

As early as January 2000, Russia's Novolipetsk Iron and Steel Corp.

(NISC) teamed up with local downstream producers of steel products and began

conducting a due diligence review of NSC to determine its actual prospects and

rehabilitation requirem

There have been unconfirmed reports in 2000 that Lucio Tan, who owned

35% of PNB, was eyeing the purchase of NSC through a local steel firm. At the

end of 1999, NSC owed PNB about 5.64-billion peso (US$139.7 million at

40.376:US$1). PNB, however, denied reports that it was amenable to the

126

condonation of NSC’s debt (Business World, 07 January 2000).

Even the Philippine government supported the Swiss-company Duferco,

Inc., represented by Credit Agricole, to acquire controlling interest in NSC (The

Philippine Star, 17 February 2000).

Swiss’ Glencore presented a $150 proposal for NSC in October 2000;

Allengoal offered to lease-operate NSC in April 2000 then again in January 2001

and signed lease agreement with NSC on 14 September that year for a fixed

monthly rental plus a share of net profits (The Philippine Star, 18 September

2001).

The Allengoal plan—a team-up of Alexander Delmo and Simplicio L.

Villarta, Jr—was quite impressive. It entailed the whole enchilada: operate the

plant within 45 days saving P12 million a month in maintenance costs; a P20.5

million monthly lease for two years until NSC finds a new buyer; share 40% of

the net income; and a P100-million cash-and-performance bond deposited to

ensure safety and facilities preservation. In addition, it had a technical tie-up with

Hatch Associates, NSC’s consultant since its inception, and an initial P400-

million credit line from International Exchange Bank. When it was presented to

Hottick, the latter readily accepted. Hottick and the creditors endorsed the

original April 2000 Allengoal proposal to Malacañang, where an impeachment in

November 2000 overtook it (Bondoc, 2001).

Furthermore, DTI received three lease proposals from Allengoal,

Capasco, and Austria’s Voest Alpine on 26 October 2001, and then the NSC

Evaluation Committee studied in November that year. The committee was

127

created by the Philippine government to receive, evaluate and select proposals

for the

Star, 17 September 2001). Refer

to Appe

2001 (The Philippine Star, 06 February 2002).

interim lease of the NSC’s Iligan plant, after the company was taken over

by Pengurusan Danaharta Nasional Bhd., Malaysia’s equivalent of the Philippine

Assets and Privatization Trust. (The Philippine

ndix E: Transactions for NSC’s Stake (1995-1998).

A breakthrough finally came in January 2002, when creditors agreed to

write-down Malaysia's $800M debt exposure in NSC. President Arroyo ordered

DTI to foreclose NSC on February 2002 after she succeeded Estrada last

January

In February 2002, the shareholders of NSC planned to create a special

purpose vehicle before the liquidation of its P30 billion assets or a sale of NSC

through public bidding. NSC special purpose vehicle was to be incorporated with

SEC as an Asset Management Co. (AMC) right after the signing of a

shareholders agreement, which will convert NSC's outstanding debt—about P16

billion in 2002—into equity (Jao-Grey, 2002).

The Philippine government enacted the Special Purpose Asset Vehicle

(SPAV or SPV) Law, R.A. 9182, in January 2003 and became effective in April

the same year. The SPAV Act provided a legal framework for the establishment

of SPVs on asset management companies (AMC) that will acquire the non-

performing assets (NPAs) of the covered financial sector. These SPVs could

then avail of fiscal incentives, such as value-added and capital gains tax

exemptions, for the transfer transaction of the NPAs from Financial Institutions to

SPVs, which could rehabilitate the acquired assets then could sell them off for a

128

profit within five years (Villanueva, 2003).

Meanwhile from 2000 to 2004, NSC facilities were accounted, maintained

and secured by a group of personnel dubbed as Plant Facilities Preservation

(referred henceforth as PFP) team in a monthly rotating schedule, refer to

Appendix CC. Under the able leadership of Engr. Ruben A. Pinaroc, this team

also devised a rehabilitation plan (this researcher was the secretariat), and

consolidated the plant assets through the Asset Retrieval Task Force, or ARTAF,

to a designated warehouse and satellite storage areas. Only the ARTAF group

remained when GSPI took over NSC facilities in 2004.

The PFP team produced a meticulously detailed Rehabilitation and Pre-

Start-up Plan (NSC, 2003) for each mill from Hot Strip Mills, Cold Strip Mills and

Electrolytic Tinning Line. The PFP’s plan even included the Billet Steelmaking

Plant, plus all the support facilities: utilities and power distribution, engineering

shops, laboratories, logistics and warehouses, administration services, including

information systems, building and grounds.

Based on this rehabilitation plan, a three-stage rehabilitation proposal

was presented in July 2003 to a task force headed by then Vice President

Teofisto Guingona mandated by Administrative Order 45 to oversee the

development of the country’s steel industry with the establishment of an

integrated steel plant in Mindanao (The Philippine Star, 23 September 2003).

Incidentally, the President Gloria Macapagal-Arroyo issued on 18

February 2004 Memorandum Order No. 136 approving the 2004 Investment

Priorities Plan (IPP) pursuant to Article 29 of the Omnibus Investments Code of

129

1987. In the memorandum’s National List, Section B declared Iron and Steel

under m

GIHL). GIHL, the sister

compa

on 25 August 2005 stated.

ed

coils, th

andatory inclusions in the IPP as required by an existing law, particularly

R.A. 7103 (Iron and Steel Industry Act of 1991).

The Recharged NSC: GSII to GSPI, 2004 –

With the SPV Law in place, this paved the way in dealing with the four-

year old NSC question. Like the mythical phoenix, NSC rose back from

bankruptcy through the acquisition of its plant assets by a subsidiary of Global

Infrastructures Holdings Ltd. (hereafter referred as

ny of India’s Ispat International Ltd (IIL), acquired NSC through its

subsidiary then called Global Steelworks Infrastructures, Inc. (GSII). It officially

changed its corporate name to Global Steel Philippines (SPV-AMC), Inc. (GSPI)

“reflecting the company's commitment to the Philippines but also presented a

clear, strong, and unified brand presence for Global Steel’s operations in Asia,

Africa, and Europe,” as its own press release

Its sister company, Ispat Industries Limited, is headquartered at Mumbai,

employs a total of 2000 people and is the India’s leader in special steels market.

IIL's core competency is the production of high quality steel employing cutting-

edge technologies and stringent quality standards. It produces world-class

sponge iron, galvanized sheets and cold rolled coils, in addition to hot roll

rough its two state-of-the art integrated steel plants, located at Dolvi and

Kalmeshwar in the state of Maharashtra (IIL’s corporate web site, accessed 10

130

October 2006). The 1,200-acre Dolvi complex houses the 2.4mtpa hot rolled coils

plant combining the Conarc process for steel making and Asia’s first compact

strip process. It hosts a 1.4mtpa sponge iron (DRI) plant commissioned in 1994,

a 2MTPY blast furnace and a mechanized multi-functional jetty for raw material

0.5mtpa cold rolling including a

galvani

lan, at

US$:P

handling. Kalmeshwar complex houses a

zed plain/galvanized corrugated (GP/GC) lines and India’s first color

coating mill.

After a brief rehabilitation phase, NSC facilities were promptly put into

commercial operations in 2005. Mill by mill, the former NSC facilities was

operated after a month or so rehabilitation phase.

McLellan Consultants were initially hired in December 2004 to conduct a

due diligence and come up with a rehabilitation plan. McLellan’s services were

officially terminated by GIHL three days after a plant tour cum due diligence.

GIHL sequestered the NSC-Liquidator PFP’s rehabilitation plan and became its

own tentative rehabilitation plan. The original PFP-prepared rehabilitation p

53 exchange rate, amounted to P935million (US$18M) for the first stage

alone, plus a P530million (US10M) for start-up spares needed to operate the

plant in the first quarter, the first year.

GIHL claimed to have spent US$20 million in 2004 even before the deed

of sale was finalized, to rehabilitate the plant then promised to invest $15 million

in 2005, and another $10 million in 2006 (Philippine Daily Inquirer, 13 September

2004).

Many operations supervisors and maintenance planners involved during

131

the GSPI’s rehabilitation phase of NSC facilities, and subsequently resigned

thereafter, observed that although the PFP rehabilitation plan formed as basis,

most of the activities in that plan were scrapped to its barest minimum as capital

investments were deemed unnecessary for the respective facilities rehabilitation.

A typical example was: if the PFP plan called for a replacement of essential parts

with new spares, especially imported spares, the replacement was deferred and

a repair of the installed part was pursued instead. In addition, instead of

procuri

mewhere in the various NSC

plant fa

ma, and in 2007 initiated ISO 9002:2000

certifica

ka Murase, JIPM Senior Counselor (GSPI Flash TPM, February 2008).

ng some required spares from either the NSC central warehouse or the

retrieved spares from ARTAF, if similar parts—from bolts, electronic cards,

cylinders to pumps and motors—were available so

cilities; these were then transferred from one facility to the other. This

latter practice continued up to the present day.

GSPI registered with Board of Investments on 07 December 2004,

making it 13th place in the top 100 companies of the BOI during the current

administration. It is the only steel manufacturing firm registered with BOI from

January 2001 (PCIJ, 2006).

From 2004, it also embarked on several management initiatives, such as

Total Productive Management, Six-Sig

tion for its Cold Rolling Mills. On 12 March 2008, GSPI received the TPM

Excellence Award—1st Category from the Japan Institute of Planned

Maintenance (JIPM) after successfully hurdling its quest for certification with

Yoshita

In December 2005, however, it dissolved its Iligan-based Business

132

Strategy department, tasked to analyze its corporate presence in the domestic

and global market; and instead relied its corporate planning through directives

from the Managing Director and his trusted advisers.

Several attempts to secure GSPI production data for the purpose of this

study, however, were denied by a number of key holders of GSPI management

positions. Even the simple request to view the GSPI’s Functional Chart or Table

of Organization for the same purpose was received with incredulity bordering on

suspicion. This dilemma was even highlighted during the constitution of GSPI’s

Core Team for ISO9001:2000 certification of its cold-rolled manufacturing

division, formed in 21 March 2007, when the ACTTI consultants requested

Management for the same, and after days of fidgeting, the copy was delivered in

a sealed envelope with a caution that it should be for the consultants’ eyes only!

lus 82,093 metric tons up to May 2006; while GSPI’s

domes

In July 2007, GSPI presented to a bank-consortium that it had started

operating Hot Strip Mill No. 2 on 02 March 2006, with an initial production of

32,078 metric tons. Furthermore, it claimed 67,570 metric tons exported to

ASEAN and China in 2005 p

tic sales grew from 9,121 metric tons in 2004 to 52,166 metric tons in

2005 plus 30,043 metric tons up to May 2006 (GSPI, 2006).

Table 21 below shows the tabular comparative analyses of production

parameters: man, machine, methods and markets. An expanded version is also

included in Appendix EE in page 267.

133

Table 21: Comparative Analyses: NSC Before, After, Now (Source: NSC for 1984-2000; GSPI are researcher’s estimates)

the researcher’s estimates were supplied,

except for work force strength came from GSPI’s Human Resource department.

Table 21 is a summary of various data and facts gathered during this

research. The primary source was NSC News, particularly for 1984 to 2000. For

GSPI, news reports were relied, if not

134

CHAPTER 6

SUMMARY, CONCLUSION AND RECOMMENDATIONS

This chapter summarizes the findings of this research and the events

hurdled by NSC in 1994-2000. A Strength-Weakness-Opportunities-Threat

(SWOT) matrix for any NSC in the future is also devised to show the

interdependence of these four (4) matrix parameters based on the results and

discussions in Chapter 5.

Summary of Findings

NSC’s Monthly and Annual Flat Steel Production

NSC was the only manufacturer of hot-rolled flat steels in the Philippines

but its hot-rolled production waned by June 1999. NSC monthly production of

cold-rolled coils is dependent on the volume of hot-rolled coils produced at NSC’s

Hot Strip Mill No. 2.

On a quarterly-basis, flats production, particularly cold-rolled coils, at NSC

also peaked in the third quarter of 1997. NSC’s production was severely affected

by the accidental fire sustained at its Five-Stand Continuous Mill (5-STCM) in

March 1998 that cold-rolled production considerably declined thereafter and

never regained its pre-Asian Financial Crises level until its liquidation in 1999.

The year-on-year percent change in NSC Production shows a decreasing

at an increasing rate, refer to Table 1 page 45.

135

Effects of External Factors to NSC’s Flat Carbon Steel Production

The table b

Carbon Steel Production.

Table 22: Effects of External Factors to NSC's Flat Carbon Steel Production

elow summarized the effects of external factors to NSC’s Flat

d

increas

World/ASEAN Steel Supply (Capacity). World and ASEAN steel

capacity was ruled by consolidation and globalization. Koda, et. al. (1995)

observed that self-support ratio between capacity expansion and steel deman

e over time, but a situation of lack of supply capacity in ASEAN continued

until 2005.

136

World/ASEAN Steel Supply (Production). While the World crude

produc

–20% and +40% year-on-year, NSC spiraled down to

its lowest point of –72.78 % year-on-year by 1999 from a peak of 56.25% year-

994,

privatiz

the apparent consumption of finished steel

tion oscillated in the ±10% year-on-year band, and the ASEAN crude

production moved between

on-year six years earlier. The downhill trend for NSC production began in 1

when was privatized during the Ramos administration, i.e., before the Asian

Financial Crises in 1997-98.

The data shows that there is no significant correlation between NSC

crude (hot-rolled and cold-rolled coils) production and the Philippine crude,

ASEAN and World crude production.

World/ASEAN Steel Demand (Consumption). In terms of Apparent

Consumption per Capita (ACC), in kilograms, the Philippines’ apparent

consumption hovered at 45kg per capita, almost one-fifth that of the averaged

ASEAN at almost 200kg per capita; or one-third that of the world at 132kg per

capita. During the Asian Financial Crises 1997-98, the ACC the world over,

including ASEAN, decreased. The Philippine steel intensity was steadily climbing

since 1984, but wavered in 1994 as a reaction with the then impending

ation of NSC. The trend recovered until 1996 and for the successive years

circled between 1998 and 2001.

NSC crude, particularly cold-rolled coils, production shows a significant

correlation to the ASEAN’s apparent steel consumption per capita (ACC), while

there is no significant correlation with

137

(ACFS) for both the Philippines and ASEAN; and a moderate correlation with the

Philippines’ apparent steel consumption per capita (ACC).

Table 23 below is a continuation of Table 22 found in page 135 above.

Table 23: Effects of External Factors to NSC's Flat Carbon Steel Production

brought Hot Strip Mill No. 2 into commercial

operati

Raw Steel Imports. The hot-rolled coils imported by NSC remarkably

decreased in 1995 when NSC

ons, thus imported slabs increased until 1996.

The results of price elasticity for NSC’s slabs at –0.12, and NSC’s hot-

rolled coils at –0.50, although accounted for in a short-run, i.e., 1995 to 1999, are

138

consistent with the range of long-run price elasticity of demand for steel, between

–0.2 and –0.3 (Barnett and Crandall, 2002).

The price inelasticity of both NSC’s imported slabs and hot-rolled coils

suggests that even if the respective import prices of these raw materials were

particularly to Asia Flats and Global Steel price indices.

low, the quantity demanded of these input steels remained low.

NSC flat carbon steel crude production shows a strong correlation to the

following factors: Philippine CRC, HRC, HRP, TP imports. There is no significant

correlation to the Philippines’, ASEAN’s and World’s Semi-Finished and Finished

(SF&F) steel imports, respectively.

Steel Prices. NSC flat carbon steel production shows a highly, significant

correlation to the following monthly steel prices: Global, Flats, Asia, and North

American Steel Price indices. Thus, as these price indices increased, so would

NSC’s production of flat steel. Similarly, NSC production is positively correlated

to most of the average import prices for both hot-rolled and cold-rolled coils.

Quarterly NSC, particularly cold-rolled coils, production is positively

correlated to all Steel Price Indices, but shows a highly, significant correlation

Effects of Internal Factors to NSC’s Flat Carbon Steel Production

The table below summarized the effects of internal factors to NSC’s Flat

Carbon Steel Production.

139

Table 24: Effects of Internal Factors to NSC’s Flat Carbon Steel Production

roduction Rate and NSC Production is highly

significant. Thus, as Production Rate is increased, there is a high tendency that

NSC P

tual

Materia

high tendency that NSC

Production would substantially decrease. As such, aiming for higher Material

rime Yield. The actual Prime Yield for each month,

from January 1995 to December 1996 hovered less than the standard Prime

1995-1999 NSC Production Rate. This research used the Effective

Operating Hours of Pickling Line No. 2 as basis. PKL2 is the input mill for all hot-

rolled coils coming from Hot Strip Mill No. 2.

Correlation between NSC P

roduction to increase as well.

1995-1999 NSC Material Yield. Actual Material Yield, in percent lingered

at 90% from January 1995 to December 1996, usually higher than the standard

yield for each month. From January 1997 to until NSC closed, however, ac

l Yield tended to go above the standard set for each month.

Correlation between NSC Material Yield and NSC Production is highly

significant, thus seeking for higher Material Yield has a

Yield could result to a slowdown in NSC production.

1995-1999 NSC P

140

Yield per month. Prime Yields on the last year of NSC’s production were skewed

ut 1.3% of the total Finished Goods

sold. T

l 1995.

here was a high acceptance rate for NSC products at customer’s end

even w

Conclusion

to higher percentages because of smaller volume of production.

Furthermore, correlation between Prime Yield and NSC Production is not

significant. Thus, aiming for higher Prime yield would not necessarily mean a

substantial change in NSC Production volume.

1995-1999 NSC Product Quality. Historically, prior to its privatization,

NSC’s customer complaints amounted to abo

his yearly average peaked to 2.0% between 1995 and 1999, when NSC

was a private company. On a monthly basis, customer complaints peaked at

2.75% of Finished Goods sold in Apri

T

hen production waned towards the fourth quarter of 1999. Customer

acceptance of NSC’s CRCs started to fall in January 1998. The fluctuations in

customer acceptance occurred during the second year of the Asian Financial

Crises 1997-98.

Data shows that there is a significant correlation between the monthly

NSC production versus Quality, or percent Customer Acceptance Rate (%CAR). Thus, as %CAR increases, NSC Production has a tendency to increase as well.

Several changes occurred in the steel industry for the decade from 1995.

141

Through these years, NSC became privatized in 1995, liquidated in 2000, and

then revived in 2004.

NSC’s foray as a private enterprise from 1995 under Wing Tiek then

under Hottick has been a tumultuous phase; its flat steel production was subject

to forces that would prove fatal to its corporate existence. NSC liquidation in

2000 brought rippling economic effects to the immediate community, in particular,

Iligan

e-opened the question of steel

integra

), Friedman and Gyr (1998), these forces came from external

factors

the political scenario might have changed personalities but considering the

of the Philippines before and at present, most Filipinos, and even

foreign

In addition, the contemporary internal factors are very similar. Majority of

City, and in general, the Philippines; as well as changed the legal

environment for the Philippine steel industry; and threatened Philippine trade

relations, especially with Malaysia. The revival of NSC facilities into operative

state in 2004 offered new possibilities for the Philippines’ quest to become a new

industrialized country by decade’s end; r

tion—the pursuit for the country’s Integrated Steel Mill; and changed,

however minute, the inter-trade of steel products within the ASEAN, AFTA, and

WTO communities.

Applying the merged versions of corporate strategic factors introduced by

Stevenson (1990

: the omnipresent globalization and trade liberalization, influx of new

technology, fierce competition, cyclical steel prices, the hitch of raw materials

imports, and the same suppliers of steel imports. The economic conditions and

general state

observers, would say that it remained unchanged.

142

NSC employees were absorbed by both Wing Tiek-Hottick and GSPI. The

privatized NSC, both then and now, operated with unchanged rated capacities of

various

ct, GSPI introduced a new type of steel grade 1006 and

improve

rolling facilities, yet with slightly improved equipment capability. The list of

domestic customers dealing with NSC are invariably the same, however, one or

two changed their corporate identities. The minimal export steel trade are still

that—minimal; and the products offered are HRC, HRP and CRC, although

customers’ specifications has became more stringent as ever before. The

constantly evolving organizational structure at GSPI is patterned from the

privatized NSC with additional interrelationships acquired from Ispat. Last but not

the least, while the NSC’s ISO9002:1994-certification may have lapsed in 2000,

but work processes, systems and standards at still based on these ISO

documents and GSPI incorporated many new Ispat-based standards, including

Total Productive Management (TPM) activities, and Six-Sigma. On the

manufacturing aspe

d production of thin gauge CRC.

Thus, if push comes to shove, although possibly that there is no apple-to-

apple comparison with the pre-privatized NSC versus its later rebirths, both as

Wing Tiek-Hottick or GSPI, however, the same factors then, from this study’s

viewpoint, still exist in the current business environment, albeit different in

intensity, focus and personalities.

Atom Henares (2006a) in his foreword to his father’s book series summed

it all:

143

“. . . running of a manufacturing enterprise requires 4 M’s:—money, machines, materials, and the management which combines the first three M’s in productive and profitable relationship. The four pillars of a business enterprise are: the investor who provides the money for financing, the government which takes care

consumer who buys its products. It is management that ties them all together –

taxes that it needs to run the country; the employee a fair compensation for his work; and the consumer his wants and needs with the highest quality at the lowest price.”

Recommendations for Future NSC

Claessens and Henderson (2007) noted, “A wave of consolidation is

sweeping the industry, but other industry wide changes are also unfolding, such

as a shift away from developed countries, rising production costs and

globalization”. They recommended, “. . . each steel company should revisit its

market position and aim for one of strength.”

Thus, for any reincarnation of NSC, not just GSPI—the latter is only used

as the base case scenario—a need to analyze its strength (S) and weaknesses

(W), explore its opportunities (O) and th

of the business environment, the employees who provide the labor, and the

giving the investor an adequate return for his investment; the government the

reats (T), to come up with strategies

affectin

ngth came from its well-trained professional

technic

tion methods; comparable “state-of-the-art” high-tech facilities and

equipment; favorable customers’ reception; and its proximity to ASEAN and

g flat production. The top five (5) issues, most are interconnected, of each

of the four (4) parameters of the SWOT matrix, summarized in Appendix GG,

Table 66, are enumerated below.

Strengths (S): NSC’s stre

al and managerial personnel; adherence to world- class standards and

produc

144

Asian markets.

S1. Well-trained Personnel: NSC’s claim to fame during the 1990s w

ined personnel. Training, seminars, and workshops, including cont

ional modules, were foremost in NSC’s Human Resource develop

as its

well-tra inuing

educat ment

agenda. Most of its engineers and other technical personnel underwent foreign

trainings in the United States, Japan and other countries. Most managerial and

one the Industrial Engineering and the

Engine

me from the pre-privatized NSC but

mostly

GSPI’s rehired ex-NSC employees were well

trained, these same employees are now older and aging. Based on the survey of

the list

supervisory personnel have underg

ering Management Training programs in 1980s and 1990s, respectively.

In addition, managers were afforded access to Asian Institute of Management

courses to augment their baccalaureate degrees (San Pedro, 1994).

On one hand, with GSII tapping these ex-NSC employees from the

different phases of its corporate existence, so

from the Wing Tiek-Hottick era, the same competency and adeptness can

be achieved through re-training and enrichment. With the reintroduction of Total

Productive Maintenance (TPM) and 5-S, which initially came to NSC’s

consciousness in 1993, high mill availability and reduced maintenance costs are

definitely assured.

On the other hand, while

of retrenched employees in 1999, the average age of most employees

when NSC ceased operations was in their early 40s with an average length of

service of about 12-15 years. Mosner and Craig (2003) emphasized the value of

retaining experienced and capable—yet aging—employees, versus the

145

significant costs of employee turnover. Retention, Mosner and Craig continued,

“will slow this exodus from the workforce and the knowledge and talent drain

while maximizing older workers’ productivity.” For GSPI, however, dealing with

older and aging technical personnel and skilled crew could pose a two-prong

future corporate financial problem. Retention requires the acquisition of

accessible and assistive technology, while retirement obliges GSPI the

disbursement of retirees’ benefits.

S2. Adherence to World Standards and Production Methods: Prior to its

shutdown, NSC was a Bureau Veritas Quality International (BVQI)

ISO9002:1994-certified company specifically ETL3, Cold Strip Mill and Billet

Steelm

s (PS) mark in 1992. Back when Kaizen was still a novelty,

NSC su

aking Plant. Only Hot Strip Mills’ certification was unrealized because of

economic constraints. Internal Quality Auditors have been trained to check

continually the certified mills compliance to ISO9002:1994 systems. Product

quality has been maintained at highest standards possible adhering to the

Philippine National Standard (PNS), Japan Industrial Standard (JIS) and

Deutsche Internationale Normen (DIN). NSC products were granted the

Philippine Standard

pervisory and rank-and-file personnel have been active participants since

1986 of Productivity Improvement Program for Operating Lines (PIPOL). PIPOL

(Sinangote, 1993) was NSC’s comprehensive program of quality circles

comprised of personnel from different departments, such as, operations, quality

assurance, mechanical and electrical maintenance, roll shop and utilities dealing

with team projects ranging from productivity and quality improvement; to delay,

146

cost and defect reduction. Thus, each of them have put to heart the concept of

quality work, quality product and quality process.

S3. “State-of-the-Art” High-tech facilities: NSC facilities were at par, if not

more advanced, with other international steel mills. Most of the installed

equipment was supplied by original equipment manufacturers with constant

consultation with USX Engineers, Kawasaki and Nippon Steel experts. Most

process-computer systems are new, and vintage electronic systems have been

upgraded to suit new applications (Hatch, 1996). Maintenance of these facilities

is paramount to the continued efficient and effective quality operations of the mill

and process lines, without which could derail customer relations because of

unrealized production, thus translated to delayed deliveries.

S4. Favorable Customers Reception: NSC enjoyed a good reputation

among customers. Complaints were relatively at a minimum and were promptly

attended to by a Customer Service Department plus the fact that recurring ones

were treated with all the help—technical or otherwise—from all concerned

parties, e.g. operations, quality assurance, maintenance, support, research and

development (NSC News, May 1995).

Based on this study, even during the privatized NSC phase, mean

number of complaints were at a meager two (2%) of the total sales, when NSC

were selling almost 30 to 35,000 metric tons per month. Although this is not the

best, compared to GSPI’s Six-Sigma quest, back then this was a feat not to be

looked down. Hearing the prospective resumption of NSC’s operation in 2004,

many NSC customers, especially those that were then led by ex-NSC

147

employees, such as the former Executive Vice President for Cold Strip Mills, sent

words to adopt GSPI as their primary supplier of their steel requirements. Their

affinity to NSC came from the long-held belief that the resurrected plant would

supply them quality products once supplied by NSC before.

This is better explained by the former Customer Service Department

head, in an interview (NSC News, May 1995), who described NSC’s relationship

with its customers as one of transparent, open reciprocity—“a mutual exchange

of goodwill with a healthy awareness of each other’s capabilities and limitations

while resolutely upholding the interest of both.”

S5. Proximity to ASEAN and Asian markets: Competitively located at the

heart of the ASEAN markets, NSC’s geographical location can supply products

by sea

erce. Moreover, based on the four-year

GSPI’s

routes promptly. Iligan to Manila is about 525 nautical miles. From Manila,

most ASEAN and Asian countries are accessible.

Weaknesses (W): Some NSC’s weakness remained with GSPI’s taking

over specifically, its dependence on imported raw materials and the outdated

NSC’s business networks and e-comm

management of NSC facilities, new threats are emerging, e.g., lack luster

remuneration scheme versus global standards; perceived instability at the top,

insecurity at the bottom; and weak marketing of products to domestic markets.

W1. The Hitch of Imported Raw Materials: From the start, NSC has been

importing raw materials, slabs and HRCs, from various international steel

suppliers through accredited traders, thus, subject to market fluctuations (NSC

148

News, 28 February 1993). The decline of the privatized NSC under Hottick was

augured by its inability to secure a long-term agreement with its slab and HRC

supplier. GSPI relies on an agreement with Stemcor and Steel Traders

Corporation (STC) for its HRC needs and sourced slabs from foreign suppliers,

too, cla

-term agreement with traditional

supplie

imed one STC employee. While it considers Ispat International Ltd with

slabmaking facilities as its mother company, the latter does not supply GSPI with

slabs, but ironically GSPI gets its slabs on spot basis from various international

sources, consequently this makes GSPI’s supply subject to market fluctuations

and traders mark-up. Thus, initiation of a long

rs of slabs and hot-rolled coils becomes imperative.

W2. Lack luster remuneration scheme versus global standards. Before

and after privatization, NSC offered competitive salaries to its employees which

were the envy of other Mindanao-based companies. Some ex-NSC employees

even considered working for NSC, with their compensation comparable to

worldw

n

of a un

ide standards, as similar to working abroad from the comforts of one’s

home country! When GSPI took over management reins, they offered rehired ex-

NSC personnel their 1999 salary levels with a gentleman’s promise of adjustment

when the company tided over to commercial operations. An attempt of a review

of the corporate compensation package took effect in 2006, yet disparities

among same level of work receiving different levels of pay triggered the formatio

ion among the rank-and-file personnel. On the supervisory and middle

managers level, the same is also true, but differences are great. Some former

NSC assistant managers and others at supervisory level then are now occupying

149

the same positions, doing the same supervisory tasks, at GSPI. Another disparity

is the fact that most expatriates occupying various positions were hired with

prevailing salary rates in 2004 or later, thus much higher than the local personnel

who remained stuck at receiving their 1999 salary levels. In present terms, the

locals’ salary levels are almost a decade-old compared to expats’ salary levels.

W3. Outdated Business networks and e-Commerce: The business

computer systems of NSC are outdated and old-fashioned. Business reporting

was done mostly through the relatively slower channel of communication:

telephone, fax, and courier systems.

Dr. Bill Torres, a part time consultant to NSC on Information Technology

since 1985, claimed that NSC stopped acquiring new information technology in

1990s, although it exchanged its PC-XTs to 486s, and WordStar to MSWord

(NSC News, 30 September 1994).

A special project submitted by this researcher in 2006 as a course

requirement to MSU-IIT MBM’s Management Information Systems and Expert

Systems in Business provided an analysis of GSPI’s Information Systems and

Services Department from the viewpoint of a user in a production setting. The

paper, entitled “Reengineering the Global Steel Philippines (SPV-AMC), Inc.

Information Systems” detailed the known facts disseminated through GSPI’s

corporate communications network, actual usage of the new in-house developed

information systems, additional related literature research, and comprehensive

analyses of the various systems. A copy of this paper was sent to GSPI’s

Information Systems Department head, who remarked that the claims made

150

therein were in essence true.

Meanwhile, a defunct Mainframe, which handled the stock procurement

and maintenance programs until 1994, sits idly and unused.

W4. Instability at the top, insecurity at the bottom. For the past (4) four

years, from 2004 to the present, there has been three (3) presidents prior to the

presen

the idea of the “old” NSC since then,

neverth

o high, foremost because of the delayed or

curtaile

t one, the Managing Director. From discussions with several employees,

most perceived this as instability at the top. Although, patience have become a

virtue of ex-NSC employees, who have shared common memory of NSC’s most

trying era and have been loyal to

eless this could not last long enough to see another “changing of the

guard.” This instability has affected the mills’ productivity, and further eroded the

seemingly perceived teamwork between management and those it managed.

Insecurity among the ranks is als

d salaries and pays, and the unremitted government dues pre-deducted

from personnel’s compensation for their SSS and Philhealth premiums, as well

as the withheld taxes, aside from unrequited promises since 2005 to fix them. To

this day, this particular insecurity is a frequent feature on most local radio

commentators’ airtime. Secondly, the anxiousness shown by management

towards the union is making the Labor-Management relationship a thorny issue.

The union only asked for the barest minimum pay increases, plus a small list of

fringe benefits, enjoyed during NSC like free hospitalization, medicines, uniforms,

shifting crew transport, bereavement assistance and group life insurance, to

which the former cut all these in half, claimed a key informant. Another union

151

officer further compared the economic provisions of the union and management

propos

es increase in night

premiu

als, referring to copies distributed by the union secretariat. A typical

example: the union proposed for an aggregate of three tim

m pay from 11.5% to 50% of regular pay, while management countered it

with 18% increase from 11.5% to 13.5% of regular pay. The informant justified

that the 50% night premium was the typical rate on top of NSC’s regular pay

since 1989, and that most members desired to revert to the accustomed rate.

On 19 November 2007, a labor crisis ensued at GSPI and its DOLE-

brokered resolution was hinged on management’s presentation to employees of

the GSPI’s financial status, which the company refused to do. The rank-and-file

attributed the crisis to the government’s decision to privatize NSC and sell it to a

company without a good track record (Valdez, 2007n).

W5. Weak marketing of products to domestic steel markets. NSC’s

dominance of the domestic market before and after privatization was legendary

that certain groups in the country branded the company an opportunistic

monopoly (Henares, 2006). In contrast, the GSPI’s marketing department, mostly

staffed with Indian expatriates who may or may not have any local selling

experience in the country resorted to focusing their skills on exports rather than

on the domestic market. It is a fact, however, that in the past four years of GSPI,

only a few of its products are for exports.

Domestic sales and marketing is being handled by a contractor, Steel

Alliance. Prospective buyers could not directly deal with GSPI but rather

inconvenienced by having to deal with a contractor.

152

Opportunities (O): Emerging markets are considered here both as a

threat and as opportunity, but rather than present a gloomy outlook, this study

proposes to positively deal with it as an opportunity. Other opportunities abound.

The recapture of the Philippine domestic steel market with government’s support

of the steel industry as stipulated in the Medium-Term Philippine Development

Plan for 2004-2010. The quest for Special Economic Zone status for GSPI is

beckoning. The realization of the Japan-Philippine Economic Partnership

Agreement (JPEPA) in January 2008 and the proposed implementation of the

ASEAN Community by 2010, and the new production technologies, processes

and methods.

O1. Emerging markets: Terril (2007) sees three possibilities for China:

status

t Asia—would become net

quo or commercialized Leninism lasting for another 25 years; national

democracy or at least a liberalized politics; or fracture due to incompatibility

between authoritarian state and a free economy. China learning from Mikhail

Gorbachev’s mistake, however, wants economic but not political change; thus

either way the future leads China, the Philippines will benefit from its close

economic interaction with it through the November 2002 China-ASEAN FTA. Any

excess steel from the Philippines, thus from the resurrected NSC, will find its way

to China.

In addition, with CRU’s projection (CRU, 2004) that the Western Europe

and the ‘Other World’—consisting of all countries outside of North America, Latin

America, Europe, the CIS, East and South Eas

153

importers in the coming years, it would be wise to gain a foothold on these

markets.

O2. Special Economic Zone. The Philippine Economic Zone Authority

approved National Steel Corporation as a Special Economic Zone (SEZ) on

October 15, 1997 as stipulated under Republic Act No. 7916 as amended by

Republic Act No. 8748 (The Special Economic Zone Act of 1995). The NSC-SEZ

would cater to downstream steel products manufacturing, fabrication industries,

and related sectors. What it lacks is the presidential stamp of approval.

O3. Favorable Government Support for the Steel Industry: Romulo L.

Neri, then Secretary of Socioeconomic Planning, (NEDA, 2004) emphasized that

the basic task of the Medium-Term Philippine Development Plan (MTPDP) for

2004-2

strategic projects to include: transport infrastructure, e.g., bridges

and po

010 is to fight poverty and build prosperity for the greatest number of

Filipino people. For Trade and Investment affecting the steel industry, the focus

would be on exports: drawing up incentive packages for the following priority

areas: automotive and shipbuilding. Other areas with direct impact to steel

industry are housing and infrastructure. For housing, a total of 1.1M units were

expected for construction between 2005 and 2010 with the expansion of private

sector participation in socialized housing construction. For infrastructure, the

creation of Philippine Infrastructure Corporation, as a subsidiary to NDC,

jumpstarted

rts, to complete the Nautical Highway System (Roll-on-Roll-off).

Furthermore, the MTPDP outlined eight (8) realities in developing a

responsive Foreign Policy, most notable of which are: (1) The United States,

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Japan and China are the determining influences in East Asia and (2) Policy

decisions should be made on the context of ASEAN. (3) European Union will

remain the largest source of portfolio investment. In this context, more trade

should be developed in these areas (NEDA, 2004).

O4. The Ascendance of the ASEAN Economic Community: By 2010,

under the ASEAN Economic Community, (Anigan, 2007) ASEAN will become a

single market and production base. Being a member of ASEAN, the Philippines

has a direct stake in the creation of an ASEAN Community, ranging in benefits

from intra-regional trade and economic progress to political stability. Exporters

can likewise benefit from the reduced administrative, political and economic costs

of dealing with a market that promotes the free flow of goods, services,

investments and people. Although this can contribute to profitability leading to

business expansion and further employment opportunities; this can, however, put

pressure on companies to enhance their competitiveness and productivity

precisely because of the stiffer competition from counterpart foreign exporters.

Thus, with two years until 2010, GSPI should position itself appropriately now

against these challenges if it is to survive.

O5. New technologies, processes, methods: Gone are the days of

scientific management, here comes doing things the Toyota way. Total

Productive Management may have been new in the 1990s, when NSC’s attempt

through the 5S route ended when the company closed. It also tried the Total

Maintenance Management System, a new paradigm of linking maintenance with

production and dealing with the former as a vital component of the latter thus,

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shattering the old concept that production needs maintenance only when

production ceases or encounters equipment difficulty.

Between 1999 and 2008, new technologies abound the steel industry,

some of which are acquired from different fields and are similarly applied to steel

such a

ent envisioned for GSPI in 2005, with

the pur

s benchmarking, business process reengineering, scenario planning, etc.

Whatever new technologies are declared, GSPI should analyze each one and

pick which of these would give greater returns for a great number of its corporate

public: investors, stockholders, management, employees, and customers.

Furthermore, although GSPI inherited a substantial volume of books,

literature and multimedia archives from the former NSC Library, its contents are

not updated and no new acquisitions have been made except for those free trade

bulletins and magazines. Even some of the technical books in the library, loaned

to expats during their first year at GSPI, has not been returned but rather kept at

separate locations in the plant. Although GSPI is vigorously pursuing its various

management initiatives, such as TPM and Six Sigma, only a handful of books are

present for reference purposes.

Moreover, the Knowledge Managem

pose of sharing information across all of Global Steel production firms—

India, Nigeria, Bulgaria, the Philippines, etc., remains an elusive dream without

the necessary infrastructure in place (Jha, 2005).

Sharing and collaboration are key components to innovation (IBM, 2004).

Knowledge Management across all Global Steel firms is innovation-in-waiting.

As globalists say, “Information is power.” With an updated GSPI Library,

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in terms of new acquisitions, actual trainings could be augmented with

information from technical books and literature, as well as from the Knowledge

Manag

o; the

constan

ement database.

Threats (T): These factors include the political and legal environment

affecting the nation as a whole, thus affecting the steel industry. Although not

discussed here at length, its repercussions are noted. Other threats include the

unbundling of the power rates and the worsening power supply in Mindana

tly decreasing import tariffs vis-à-vis the increased volume of steel

importation; the rising “brain drain” syndrome; and the challenges of keeping the

natural environment safe from pollution.

T1. Legal and Political Environment: The political environment in the

Philippines has been volatile in the 1990s, with the fall of Marcos and then

Estrada, highlighting each break in the economic situation of the country. Gloria

Macapagal-Arroyo’s term, due to end in 2010, has shown promise in stabilizing

the economic policies of the country. Most people are optimistic that the country

could d

ct

to the i

o better in the coming years. The MTPDP for 2004-2010 outlined the

most important Philippine concerns such as Economic Growth and Job Creation;

Energy; Social Justice and Basic Needs; Education and Youth Opportunity; and

Anti-Corruption and Good Governance.

Furthermore, the remnants of Jacinto (NSC News, 12 September 1990)

and Cacho cases, inherited from the NSC and NDC, might not bear much effe

ndustrial position of the company and will be a lingering reminder of the

157

past. If GSPI has the legal right to deal with these cases, they should also be

pursued for legal finality, or a set of guidelines be drafted such that the reputation

of the new corporate identity be separate from the old.

2. Unbundled Power and Worsening Energy SupplyT : The Philippines

passed

in the industry, most notably NPC, the

establis

cifically for the BSP operations, it also

supplie

a landmark law (R.A. 9136) which embarked on the restructuring the

power sector in 08 June 2001. The Electric Power Industry Act (EPIRA)

envisions an industry with an independent regulator; privately owned and

competitive generating plants; singly regulated and privately owned transmission

system; power distribution companies with incentives for performance; and

vibrant competition for retailing power to end-users. It provides for the

privatization of state-owned companies

hment of wholesale electricity spot market (WESM), the creation of new

regulatory body, the government’s absorption of P200 billion of NPC’s liabilities,

and the review of NPC-IPP contracts (Abrenica, 2004).

With unbundling of power rates in October 2002, the new power rates

posed a threat to the bottom line. The present rate system allows for the

imposition of sub-transmission rates for all systems below 138kV. NSC’s

electrical system used both 138kV and 69kV power supplies. Most sheet-

production facilities, HSM, CSM and ETL manufacturing, are connected to the

138kV supply. Although the latter is spe

s the whole of NSC plant in case of power fluctuations or interruption.

Thus, GSPI pays monthly for a power supply not directly used for flats

production. From October 2002, transmission charge for 138kV was about

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P171.62/kw, while total Transmission Charges for 69kV was P242.83, or an

additional P71.21/kw for sub-transmission. These charges are continually revised

with increasing trend. It is imperative, therefore, that proposed project to relieve

the 69kV supply and the plant to be solely supplied by 138kV be pursued (PFP,

2002).

T3. Increasing Steel Imports, Meager Steel Exports: Total imports is

stable at 19% increase per annum with Iron and Steel imports regaining from a

decline starting in the first quarter of 2000 and a strong climb at the end of the

fourth quarter in 2002. Recent data from NEDA online shows that imports will

climb from 42.6% increase during the second quarter of the current year to a

level lower than the highest attained in 2002. Total exports decreased beginning

2001 and will gradually remain at low levels seen in the last quarter of 2004.

While, Iron and Steel Exports accounts to a meager 0.06% of the total

Manufactured Exports, NEDA predicts that it will continue to hover between P18

and 20M for the succeeding years.

T4. Rising “Brain Drain”: With the construction boom in the Middle East,

especially in the United Arab Emirates, Kuwait, plus neighboring ASEAN

countries like Vietnam, Cambodia and Malaysia, technically inclined Filipinos,

e.g., engineers, technicians, or experts, are joining in the bandwagon in search of

the proverbial pot of gold (Tullao, Jr., 2000). This is even true at GSPI, when

each time offers of job on foreign lands are posted somewhere, employees—

from managers down to the low-ranked personnel—flocked in hordes hoping to

be slotted for at least an interview. Employees who were hired in 2004, promised

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with rosy future after the closure of NSC for almost four years, hoped for easier

months ahead, yet remained in the same position with the same pay level for four

years—pegged at 1999 exchange rates, plus holding respective familial

obligations and responsibilities have no recourse but to look for greener

pastures. Worse of all, these same ex-NSC employees observe that their

counte

in Middle East because of

employ

rpart expats, toting their GSPI-issued laptops, hired in 2004 at a salary

level based on 2004 exchange rates, are pampered. Expats, claimed a former

manager, are afforded with shuttle buses to ferry their children enrolled to

premier private school all expenses paid for by GSPI. They relax in their fully

furnished no-rent blue houses with free electricity, free cable, landline and

internet connections, plus free-flowing no-charge potable water, and sport

amenities that could rival a five-star hotel: Olympic-size swimming pool, a

covered tennis court, a standard size basketball court, guarded every hour 24/7!

Highly trained Systems Engineers and Technicians, although loyal at first

to GSPI, are now considering employment

ment status uncertainty. Between 2005 and 2006, a number of

experienced mechanical and electrical tenders plus well-trained quality

assurance inspectors resigned to fill vacancies with higher competitive

compensation packages outside of GSPI. Fortunately, fresh college graduates

from nearby universities and colleges, including MSU-IIT, St. Peter’s College and

Xavier University, were immediately drafted to fill the void, but by 2007, these

same replacements followed suit their predecessors for high-paying foreign jobs.

T5. The Challenge of the Natural Environment: Philippine government is a

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signatory of the Kyoto Protocol, and several landmark laws have been enacted in

support of this gesture, such as the Clean Air Act, Water Conservation Act,

among others.

In April 1994, NSC shared with two other companies—Coca- Cola

Bottlers Philippines, Inc., and Honda Cars Philippines, Inc.—the first Macli-ing

Dulag Environmental Achievement Awards Special Citation for Corporation for

demonstrating deep commitment and outstanding achievements in protecting

and conserving the environment (Illut, 1994).

By 1995, NSC completed the Acid Regeneration Plant, its eleventh

environmental control facility since 1984 in addition to dust collectors, fume

scrubber, treatment plants, neutralization facilities, and smoke stacks.

Furthermore, NSC adopted a Business Chapter for the Environment in 1993

based on the Philippine Business Charter for Sustainable Development. An

Environmental Management Group administered NSC’s efforts in waste

reduction, recycling, treatment and disposal (NSC News, August, 1995).

In contrast, GSPI has but a single person who used to be part of NSC’s

Environmental Management Group dealing with all this concern.

S-O Strategies: the following strategies might turn opportunities (O) into

strengths (S).

Pursue ISO9001:2000 certification. (S2, S4, O1, O4): Western quality

standards previously and currently dictate the present market (Allio, 2006). A re-

certification would greatly increase the company’s reputation to customers. Once

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ISO9001 re-certification is achieved, an ISO14000:2000 certification should also

be considered. Incidentally, GSPI’s Core Team for ISO9001:2000 certification of

its cold-rolled manufacturing division was formed last 21 March 2007. The team

is presently on its second review of all required documents for certification. With

these, plus the fact that NSC products are already afforded the “PS” mark, the

whole world could be GSPI’s market!

Develop technical cooperation with ASEAN, Asian counterparts. (S3, S5,

O2, O5) With a recommencement of partnership agreement or technology-

transfe

.1% of

Philipp

Japan signing

the JPEPA last 06 September 2006, and the projected Senate ratification slated

this Ma

effects to the burgeoning Philippine steel industry, particularly its

implica

r with Japanese’ TMBP manufacturers, the company could gain a foothold

in pineapple tin cans for Dole and Del Monte, if it decides to rehabilitate then

operates Electrolytic Tinning Line No. 3 (ETL3). At present, with all of the three

tinning lines in the Philippines remaining closed, all tinplates for the manufacture

of tin cans are imported to the Philippines (compare this with Appendix O).

Okayama (2007) surveyed the use of economic partnership agreements

(EPA) between 24 January and 16 February 2007 and found that 43

ine respondents have no interest in Japan-Philippines EPA, while only

20.8% wants to know details. However, with the Philippines and

rch 2008, it would be wise if the agreement would be looked upon now

and explore its

tions to GSPI.

Roxas (2007) reporting for The Manila Times, wrote “the Department of

Trade and Industry stresses that JPEPA will help Philippine business become

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globally competitive and achieve success across numerous markets, not just

Japan. When the agreement comes into force, it will create new benefits and

opportunities for Philippine society. . . The agreement spells out the framework

for the expansion of trade in goods and services between the two countries,

paving the way for wider market access bigger investments and technology

transfer from Japan.”

Technical cooperation with other ASEAN and Asian steel companies, like

Nippon Steel or POSCO, or even the US Steel, could address productivity and

yield improvement, cost reduction and benchmarking. Presently, only Ispat

expatriates are hired for this purpose, to which a number of local personnel

countered that most of these expats are still “learning the ropes” instead of

sharing their supposedly expertise on steel manufacturing.

Maximize use of BOI incentive to maintain equipment's capacity and

capability. (S1, S3, O3). NSC was registered as a pioneer enterprise with BOI

and was entitled to up to 100% tax credits for the purchase of domestic capital

equipment and parts. Presently, however, production runs are often stopped at

GSPI because a critical spare is not available, a part or section of mill is

continuously operated up to breakdown point; delays could even drag on for

hours, even days, because certain replacement parts or necessary tools are not

immediately available. Maintenance downturns, instead of behaving in a cycle of

15 or so days, are done on a spontaneous basis, yet inspection, repair,

replacement or servicing activities on equipment are usually incomplete because

of lacking materials and supplies to perform the scheduled maintenance work

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orders. Several mill supervisors attested to this fact and most lamented that

GSPI is running the former NSC’s plant facilities to breakdown.

One engineer emphasized his observation of the GSPI’s cycle of facilities’

rehabilitation: rolls-out an initial rehabilitation plan; wait for spares, which is

prolonged because of lack of funds; puts the plan on-hold; then a new president

comes in, which changes the rehabilitation focus, and pursue another

rehabilitation plan of another equipment, and the cycle is repeated.

Initiate long-term agreements with ASEAN and Asian countries. (S5, O4)

China is still the most volatile market in Asia, but with the projection that it will

slow down in the coming years Terril (2007). Guerrero (2007) wrote in Global

Finance, “China’s continuing economic expansion may be a bumpy ride, but the

country’s prospects still look remarkably good.” Thus, other ASEAN markets

should be pursued.

These agreements could also include slab and hot-rolled coils supply, or

eventually, including tin-milled black plates supply; as well as technical

cooperation on product and yield improvement, cost reduction and management

systems.

Re-inculcate the importance of quality in methods, products and services.

(S1, S2, O5) With adherence to world standards plus the company’s appreciation

and application of Six Sigma technology, boosting confidence of ex-NSC

customers to be lured back as users of the GSPI’s product as enthusiastic as

before.

Updated and relevant seminars, trainings and workshops on Quality

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should be included in the training schedule. Attendance to various Quality

Conferences should also be looked into, and personnel attendance to such

events should be included in the annual budget. Subscription to pertinent

publications on quality would be an added bonus.

W-O Strategies: the weaknesses (W) can be transformed into

opportunities (O) by these strategies, such as:

Total overhaul of organization based on worldwide benchmarks. (W2,

W3, W4, W5, O1, O5) Andrew and Sirkin (2006), in a Senior Management

Survey, found that globalization, organizational issues—metrics and

measurement, structure, and people—and leadership remain three of the biggest

challenges facing companies that are seeking to become more innovative.

A Performance Appraisal system and Key Results Anchors must set the

level o

le with the equipment at the former NSC facilities.

f performance based on worldwide comparative benchmarks, not just of

equipment but of personnel, too. Presently, a supervisor claimed that some

production hurdles are based on either Dolvi or Kalmeswhar that are

incompatib

Revive the ISM project. (W1, O1, O2, O3) Senator Gloria Macapagal-

Arroyo, then undersecretary of the Department of Trade and Industry under

Aquino’s presidency, disagreed with NEDA’s 1992 judgment that the Integrated

Steel Mill (ISM) was not viable and feasible. She was instrumental to the NEDA’s

funding approval when NSC made a new study, which showed otherwise (NSC

News, September 1992). The ISM project remained complicated then shelved,

165

however, because of the proposed privatization, and subsequently, the Jacinto

litigation in 1992.

Henares (2006) urged the public to “let’s get it on with our steel industry,”

after lamenting that, the Philippines steel industry lagged 35 years behind that of

South Korea and Taiwan. The Integrated Steel Mill dream for the Philippines has

been s

he Aquino era when privatization

was pri

d on

the sta

from now (Valdez,

2007m

cuttled, not just once but thrice, by IISMI (NSC News Supplement, 12

September 1990), during the Marcos era, and t

oritized before backward integration.

Former NSC’s CEO, Dr. Antonio V. Arrizabal, and president & COO,

Rolando S. Narciso, prior to privatization, both claimed that “integration is a

necessity, and privatization is a sacrosanct government policy—and . . . are 100

percent behind it” (Henares, 2006). When Wing Tiek took over, it embarke

rt of FYEP Phase II-B, but Phase III (ISM) discussions were also on the

agenda.

Last 23 May 2007, Lalit Kumar Sehgal, Global Steel managing director,

announced that GSPI is investing $1.5-billion two-phase Integrated Steel Mill

project in Iligan City to be completed in 2010, or two years

). This news surfaced after speculations that GSPI’s Iligan plant was to be

sold to Tata Group (Osorio, 2007) and the brouhaha regarding cold-rolled coils

exports to Vietnam (SEAISI Newsletter, March 2007). Exported cold-rolled coils

were slapped with higher tariff by Vietnam claiming that the raw materials used

did not come from the Philippines but instead from India (Valdez, 2007j). This

was reminiscent of the Jakarta Form D issue in October 2005, when the

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Association of Galvanized Steel Manufacturers in Indonesia complained against

GSPI’s availing reduced tariff rate using Form D for its cold-rolled coils

questio

d other sources of financing, among

others.

ning the source of raw hot-rolled coils allegedly from India rather than the

required 40% local content from the Philippines (de Pedro, 2005).

With the ISM, the next logical step is an application for Special Economic

Zone status for GSPI, which promises (de Lima, 1999) investment incentives for

ecozone developers, operators and locators such as Income Tax Holiday, access

to official development assistance (ODA) an

Pursue favorable tariff rates for raw materials imports. (W1, O3) The

greatest threat is the steel tariffs. The overall trend is a gradual decrease of

Weighted Average Tariffs since 1990 (Remo, 2004). The Philippine government

announced in July 2004, the Cabinet Committee on Tariff Related Matters would

take time to study opposing positions on raising steel tariffs, which is expected to

cause increases in prices of basic commodities manufactured by downstream

steel users like canned goods and construction materials. Prior to the purchase

of NSC’s assets by GIHL, the latter have vigorously announced its concerns

regarding the tariff rates, presently from zero to 3%, imposed on steel products.

GSPI’s, known then as GIHL, position highlights (Inquirer News Service, 22 July

2004) that there should be a difference in the tariff between the raw materials

used for the production of steel products and the finished products itself to make

the operations of NSC, now GSII, feasible and viable. This issue remains

unresolved, pending the evaluation of GSPI’s status whether it is already on

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commercial operation or not. Eñano (Manila Standard Today, 23 July 2004)

wrote, “This did not sit well with opponents of the planned tariff increase.”

The Philippine Chamber of Commerce and Industry (PCCI) had been

very vocal about this issue. “Government should not give preferential treatment

to any

and other relevant factors such as cost efficiency, terms, quality and

service

group who has intentions of reviving operations of a closed company. All

companies should compete normally without special favors. As in the case of

NSC, Global should not be allowed to raise tariffs and then adopt an import-parity

pricing system,” it said. “Rather, prices should be based on normal market

forces...

.” (Manila Standard Today, 23 July 2004)

Under the Implementing Rules and Regulations of Executive Order 375,

the 7% tariff on HR and CR steel products will be imposed once GSII’s

production volume is found to have reached certain level. This is 50% of GSPI’s

BoI-registered capacity for flats products or 50 percent of average Philippine

importation volume of HR or CR steel products for five years immediately prior to

the state of operations (Manila Standard Today, 25 June 2007).

Upgrade Business networks and systems using new technologies. (W3,

O1, O5) Before any hardware and software system gains user applicability, user-

friendliness, and continuous improvement, an upgrade of antiquated hardware

should be the first and foremost concern. Computerization does not come cheap,

thus initial investments should be programmed to ensure deployment without

sacrificing the operational capability of the basic business: steel manufacturing.

One option to consider: instead of buying a new corporate server, the

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Mainframe System could be re-deployed to tackle the business process for the

whole plant. In 1997, IBM (Layland, 1997) released its High Performance Routing

(HPR) for Mainframe System offering better performance and fault tolerance than

TCP/IP, the protocol used by Windows-based systems, especially those involving

transaction processing and electronic commerce.

Strengthen domestic markets with local partnerships & new product

development. (W5, O5) Andrew and Sirkin (2006) also found that among

industrial goods companies, including steel, the financial returns of innovation are

satisfactory. Furthermore, of the four possibilities on the new products and

services axis of innovation, 71% of the respondents rated new offerings for

existing

s of all issues.

customers are considered important or highly important, thus most

valuable and worth pursuing.

S-T Strategies: To alter perhaps the threats (T) into strengths (S), the

following strategies are proposed:

Revive Corporate Communications to update employee

(S1, S4

t

and lite

, T1, T4). NSC News, associated with the Company itself rather than with

any of its sectors, enjoyed almost 21 years of being the corporation publication

for NSC from 1976 to 1997. Bayani Santos, Jr., NSC News editor-in-chief, wrote

in November 1992 issue, “The magazine ... has become our people’s collective

intellectual and written tradition ... as they build this Institution.” For years, it

featured corporate affairs, news updates, regular columns, forum, miniature ar

rary pieces written or drawn from a small editorial staff of ten, plus at most

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55 area coordinators-contributors.

On 06 January 2005, then GSPI’s president Sushant C. Das appointed

twenty-two employees to comprise the editorial staff and communications

coordinators for the company’s quarterly newsletter, aptly named: Global

Phoenix. The newsletter aimed an added communication link between the

organiz

llowed inside the corporate grounds. Employees

caught reading or disseminating the clipped news items were made to explain to

their re

our eyes only” or “restricted to the recipient”.

Moreov

ation, its employees and their families by informing of the events,

updates, plans and direction of the company (Internal memo to author). Drafts

were laid out for the maiden issue, but except for the appointment memo, it never

saw the light of day.

When Indian expats first came to NSC, they had the mistaken notion that

events regarding NSC written in the newspapers then at the end days of

liquidator’s phase were not a

spective heads. Every so often, even recent office memoranda regarding

personnel matters are marked “for y

er, a Total Productive Maintenance (TPM) newsletter, Flash TPM, is

sometimes published aggrandizing the breakthroughs of the Management

Initiatives department. Although there is the facility of using Lotus Notes, for

select individuals who has ready access to a networked computer, the system is

more often than not used for recycling spam or forwarding memos, but not used

as a communication tool for the entire corporate arena because of software and

hardware limitations. The same dilemma is faced by the Intranet, which can only

be viewed by select individuals excluding most rank-and-file personnel. Thus,

170

this researcher doubts the sincerity of the efforts to revive a semblance of a

printed- and publicly-viewed corporate communication newsletter at par with the

defunct NSC News. Yet, it is common knowledge that corporate communication

is the key to disseminating the right information at the right time rather than

building-up loose talks through the grapevines.

Use local talent to address power conservation. (S1, T2) During the

trying times under the Wing Tiek-Hottick NSC, cost reduction and austerity

measures were the key words, as exhibited by the constant articles on this

subject on many issues of the NSC News. Power conservation means were

suggested by local personnel. Recycling, i.e., writing on the other unused side of

a used paper, saved the company money intended to buy reams of crisp clean

sheets; refilling of used computer printer ink cartridges; etc. was a fashionable

money saver. Using the available local talent, pooling them together could result

in a much bigger savings than just turning off the lights in a room when nobody is

around.

Maximize base capacity production through efficient use of resources.

(S2, S3, T3) People are the key to manufacturing or production of steel,

especially if the facilities are yet to be fully automated. Maintenance spare parts

are “the juice”, as one maintenance supervisor said, to make those facilities

operate efficiently, safely and cost-effectively. Last but not the least is the

capability of the installed base capacity of the facility. A balance of all these three

elements must be met for an equitable accounting of contribution to the totality of

production process.

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Create common corporate memories, symbols, etc. (S1, T4) In any

organization, corporate symbols and corporate ceremonies create semblances of

community and commonality. Management creates the means that these

facades are transformed into personal convictions or group dynamics.

Initiate concept- sharing on environmental measures in AEC. (S5, T5)

Three

SEAN Economic Community in a concept-sharing method. The

Comm

major agreements were reached at the Earth Summit in Rio de Janiero,

Brazil in June 1992. These are the Rio Declaration, Agenda 21 and Forest

Principles (Cola, 1993). The Rio Declaration contains the statement of principles,

the basis of Agenda 21—moral, just, habitable, clean, cooperative, secure,

prosperous and shared world. Agenda 21 addressed to governments, non-

government organizations, groups and the public, all of which must be involved

to diminish environmental catastrophe in the 21st century. Forest Principles

provide for a future convention on forest conservation and restoration. These

three agreements signed by 170 nation states should be dealt with also by the

future A

unity sharing common tropical weather has virtually the same ecology and

natural environment, thus any improvement in one could be replicated in another.

W-T Strategies: To diminish the threats (T) into weaknesses (W), and

then possibly revamp these into strengths, the following strategies are

recommended:

Partner with national agencies to address compensation package. (W2,

W4, T1, T4) GSPI could seek the help of locally based government agencies to

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addres

s. If these

superv

s the disparity in compensation package. For more than two years since

2004, there were no promotions, no salary increases for hired local employees.

This disparity seems less among management’s priorities, but the impact to

productivity is huge. Most rank and file are handled by local supervisor

isors form their own union, during NSC era there were two contending

groups representing the level, thus this is a potential threat to productivity.

Study the viability of SCADA, self-generation and mechanics of WESM.

(W3, T2). Monitoring of electric power usage at NSC facilities used traditional

meters, and these are located on some entry points only. No individual meters

are available on a per mill basis, thus load scheduling and load shedding cannot

be effectively done. Supervisory Control and Data Acquisition (SCADA) systems

or an Energy Monitoring System (EMS) have been used by steel mills the world

over, and they surely are applicable to GSPI scenario.

With the WESM on its initial stages of spot market tests, GSPI being a

large user of electric power should be prepared to have a competent and WESM-

accredited electricity broker upon the implementation of open access (Mendoza,

2007). Furthermore, a technical feasibility and economic viability study of self-

generation of power for GSPI could also offer another option.

Partner with steel end-users on Tariff resolution. (W1, W5, T3). In

contrast, on May 24, 2002, China has set custom duties on steel imports ranging

from 18% to 26% depending on the type of steel products (China Watch, 26 July

2003)

Also, on December 20, 2001 the US International Trade Commission

173

recommended: a four-year program on tariff and tariff-rate quotas for plate, hot-

rolled, cold-rolled and coated sheets 20% for the first year, 17 for the second,

14% for the third and 11% for the fourth (Walker, 2002).

Similar rates should be vigorously pursued to protect investments. It is

hoped that dumping of steel products be reduced to a minimum if the tariff rates

are imposed favorable to all players in the Philippine steel industry, not just one

company.

Augment legal pay with perks and fringe benefits. (W4, T4). Wing Tiek-

Hottick NSC offered competitive salaries comparable to other multinationals in

the country. Not just that but also with a comparable package of other benefits on

top of those mandated by law which extends beyond what was required by the

Collective Bargaining Agreement, notable of which are: maternity, hospitalization,

100% cost-free medicines, free infirmary services, housing loans, insurance,

depend

the SWOT fourth

weakne

lling mills since 2005, citing their bottleneck constraints, thus other

produc

ents scholarship, corporate wellness, 1.5 months per year of service

retirement, and bereavement assistance. (NSC News, August 1992)

All these paved the way of harmonious relationship between

management and union during NSC (NSC News Supplement, October 1992).

The matter of unionism at GSPI, as explained in

ss (W4) above, however, remains on deadlock with management not

budging on its first and last offer of economic benefits.

Although, GSPI offered volume production incentive for its pickling line

and ro

tion lines have been deliberately excluded. Several supervisors have

174

pointed out this discrepancy since then, but suggestions for correction have not

been heeded, aside from the delayed disbursement of deserved incentives.

Update Environmental Monitoring equipment and beef-up EMS

personnel. (W4, T5) Most environmental monitoring equipment was sequestered

by NSC liquidator, as added-value equipment to manufacturing. With the global

thrust of protecting the ecology and the environment (Cola, 1993), such

equipment are vital to the issuance and renewal of an Environmental Certificate

of Com

d

environ

Recom

pliance by the DENR, without which GSPI could end up like Sonic Steel

Industries.

Sonic operates a galvanized iron factory at Trece Martirez, Cavite. The

Foundation for National Development alleged that Sonic Steel “failed to put up an

environment monitoring fund (EMF) and create a multi-partite monitoring team to

regularly check on the factory’s air, noise and wastewater emissions as required

by the ECC.” Sonic Steel, however, denied these allegations (The Philippine

Star, 06 February 2005).

With only one personnel assigned to monitor GSPI’s environmental

management, truly a job for a specialized department with dedicate

mental engineers in 1999, additional staff should be hired to beef-up

Environmental Monitoring Systems (EMS) group.

mendations for Further Studies

In as much as this study only dealt with a very brief period of time in

175

NSC’s history (1994-2000) and limited in scope (production), as a follow-up to

this research, the following studies could be done in the future:

The NSC Flat Steel Production from 1974 to 1994: This study could

provide insights on the internal changes—capacity and technology upgrades,

management initiatives, etc.—during this period and explain its growth in terms of

production parameters over time.

The comparison of NSC’s financial performance for the period 1983-1994

versus 1995-2000: This study could give insights on the impact of privatization to

NSC’s corporate performance, in line with previous studies, such as Megginson,

Nash, and van Randenborgh (2004), and Boubakri and Cosset (1998).

The impact of Plant Facilities Preservation activities during the NSC-

Liquidator period 2000-2004 to the eventual resumption of NSC facilities’

operational status: This study could give an alternative viewpoint on the

effectiveness of the Liquidator-NSC preservation efforts, which might have

benefited GSPI’s shorter rehabilitation of NSC facilities to months rather than

years, as initial assessments predicted.

A feasibility study of of Electrolytic Tinning Line No. 3’s commercial

operations in Iligan City. This study could provide pointers to the technical

feasibility and economic viability of commercially operating Electrolytic Tinning

Line No. 3 in Iligan City.

the recommendations after the SWOT

analyse

Human Resource on NSC production, including the impact of supervision, the

Several points have been raised in

s above. These are all worthy of separate studies, such as: the effect of

176

effect of unionism, or the perceived contribution of expatriates; the viability of

installing new business systems, e-commerce, SCADA, environmental

monito

preserved, microfilmed, catalogued, and kept

in a d

ring system to production, and others.

With these abovementioned further studies, it is imperative that all NSC’s

electronic and paper-based documents—financial and production records,

standards, and the like—should be

esignated archives open to researchers for the benefit of future

generations. If US Steel and Bethlehem Steel have libraries keeping records

dating back from their respective inception dates, the former NSC, if not the

Philippines steel industry, deserves to have one, too.

National Steel Corporation may no longer physically exist but lessons

from its existence for thirty years from its incorporation in 1974 to its corporate

demise in 2004 are relevant to any of NSC’s future incarnations as well as its

future researchers. To paraphrase a proverb: not learning from the past is a

presage to repeating the same.

177

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XX: 5,

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Makati: Corporate Communications, NSC, May, 1995. pp. 5 - 7.

XX: 7,

Balali, Macky (ed.) (1995), Protect and Preserve. NSC News

Makati: Corporate Communications, NSC, July, 1995. p. 11.

, Vol. XX: 8. Makati:

Bañares, Oscar (1990), Rationale: An Integrated Steel Mill for the Philippines.

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Bañares, Oscar (1994), The Integrated Steel Mill: Prospects for Financing. NSC News, XV: 6, Makati: Corporate Communications, NSC, 30 June 1990. pp. 2 - 3.

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6, Makati: Corporate Communications, NSC, 30 June, 1993. p. 11-14.

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Longakit, Glenmoore (1993), Probing the ISM Study. NSC News, XVIII: 2, Makati: Corporate Communications, NSC, 31 March, 1993. pp. 4-10.

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191

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Narciso, Rolando S. (1994),”Together, We'll Reach Our Goals.” NSC News, XIX:

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National Steel Corporation (PFP, 2003), Rehabilitation and Pre-Start-Up Plan for NSC. Iligan City: Plant Facilities Preservation, NSC, July 2003.

Navarro, Rizalino S. and Ibrahim bin Bidin (1999), “Re: National Steel Corporation Survival,” Letter to Philippine President Joseph Ejercito Estrada. 15 December 1998, pp. 1 – 3.

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NSC News (1990), What Employees Should Know About The Jacinto Claim,

192

NSC News Supplement, Iligan City: NSC, 12 September 1990, p. i-ii.

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193

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, XV: 4, Makati: Corporate Communications, NSC, 30 April

Santos

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, Bayani Jr. (ed.) (1992), 18th Anniversary Supplement: Milestones. NSC News. Makati: Corporate Communications, NSC, 29 February 1992. pp. 46-47.

Santos, Bayani Jr. (ed.) (1992), Steel isn’t just for things; It’s for people. NSC News, XVII: 8, Makati: Corporate Communications, NSC, 31 August 1992. pp. 8-15.

Santos, Bayani Jr. (ed.) (1992), FVR OKs sale. NSC News, XVII: 9, Makati: Corporate Communications, NSC, 30 September 1992. p. 3.

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Santos, Bayani Jr. (ed.) (1993) Supply Side Economics: A More Challenging

September 1992. p. 6-7.

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Santos, Bayani Jr. (ed.) (1993) Privatization advisor named. NSC News, XVIII: 7,

Santos, Bayani Jr. (ed.) (1993), The integration riddle. NSC News,

Makati: Corporate Communications, NSC, 31 July 1993. p. 26.

XVIII: 9,

Santos 993), Steeling Our Resolve for Philippines 2000, transcript of speech delivered by President Fidel V. Ramos, Hot Strip Mill

Makati: Corporate Communications, NSC, 30 September 1993. pp. 3 -5.

, Bayani Jr. (ed.) (1

No. 2 Inauguration Ceremonies on 17 July 1993. NSC News Supplement. Makati: Corporate Communications, NSC, July 1993. pp. 2-3.

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ote, Nards (1993), “Total Quality Management: Is National Steel ready for it?” N XVIII: 2, Makati: Corporate Communications, NSC, 28 February 1993. pp. 8-9.

194

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Intervieity. 16 and 17 April 2007.

Interview with Jonathan Leo M. Roa, former Statistician, NSC, Iligan City.

Electronic mail correspondence with Esteban V. Cabrera, Jr.

w with Teresita Panganiban, Analyst, Philippine Iron and Steel Institute, Makati C

Interview with Necitas C. Vicente, former Process Quality Engineer, NSC, Iligan City. November 2007 and February 2008.

February 2008.

, formerly Executive

Electroearch & Technical Department, NSC. Various

dates.

Intervie

Vice President, Manufacturing, NSC. 2006.

nic mail correspondence with Christine Cabrera-Manuel, formerly Researcher, Applied Res

ws with persons who wished to remain anonymous (refer to Appendix HH), various dates.

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Compo

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195

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International Iron and Steel Institute (IISI) (2006), Steel Statistical Yearbook

: IISI, Committee on Economic Studies, 29 May 2006.

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Ispat In

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196

APPENDIX A

KEY INFORMANT INTERVIEW QUESTIONAIRE

The researcher will introduce the study to respective key informant

intervie

informa

of interview will be noted. Personal recollection of key informants in relation to

their N tomer or supplier, will also be

1. Of the six external environmental factors: economic conditions,

one of these greatly affected NSC’s flat carbon steel production

? Why do you think so?

stomers, products and

affected NSC’s flat carbon steel production between 1994 and 2000?

wees by citing the title, delivering a short background, highlighting the

main purpose and objectives of the study and emphasizing the value of any

tion gathered. The name and position of the interviewee, place and date

SC experience, either as employee, cus

documented.

A tentative set of questions for the interview will primarily include the

following:

political scenario, legal, technology, competition, and markets, which

between 1994 and 2000

2. Of the seven internal environmental factors: human resources,

facilities and equipment, financial resources, cu

services, technology, and suppliers, which one of these greatly

197

Why do you think so?

3. What other factors not r

impact on NSC’s flat carbon steel production between 1994 and

2000? Why?

4. Of the three economic events between 1994 and 2000, such as the

Asian Financial Crises of 1997-98, the Philippine Economic Reform

the 1990s, which of these greatly affected the flat carbon steel

production of NSC? Why?

managed the company after its privatization? What other changes in

the any aspect of the company: man, machine, process, etc., should

ment team after privatization?

affected you? Your company?

7. Could the foreclosure proceedings and eventually the liquidation of

the only logical solution then or not? Why?

mentioned above could have had a majo

and Liberalization, and the global slowdown of the Steel Industry in

5. Knowing what you know now, any suggestions how NSC might have

have been made by NSC manage

6. Based on your personal experience, how did the closure of NSC

NSC have been averted in 1999? How? Was the liquidation of NSC

198

APPENDIX B

KEY INFORMANTS

National Steel Corpora

Esteban V. Cabrera, Jr. EVP Manufacturing IsidEduardo F. Soriano, AVP Cold Strip Mills GeNorberto G. RuSimplicio M. Villarta, President, NASLU

NSC’s form

Manager, Philippine SteHeaPlant Manager, Bacnotan Steel Hea

Iligan City

Henry ne erce

Orlando M. Maglinao, Councillor, Iligan City Council, and former Manager

Wilfredo A. Bacareza, Councillor, Iligan City Council, and former

Refer also Appendix FF: Special Acknowledgement for former NSC personnel, for additional list of key informants

tion (NSC)

ro F. Hynson, Jr – AVP – Engineering

meniano A. Valdeleon, Manager, CSM – Area II Oller, Head, Engineering

ben A. Pinaroc, Plant Manager, NSC-Liquidator

er customers President, Puyat Steel

el Corporation d of Operations, Steel Corporation of the Philippines

d, Iligan Service Center

personages Alejo A. Yañez, former Mayor, Iligan City Lawrence Ll. Cruz, Mayor, Iligan City

C. Dy, Vice Mayor, Iligan City, and former President, PhilippiChinese Chamber of Comm

TED, NSC

Manager, Utilities, NSC

199

APPENDIX C

N SC PROCESS FLOW

Figure 37: NSC Process Flow (Source: NSC)

200

APPENDIX D

ECONOMIC TIME LINE AND STEEL INDUSTRY

201

ECONOMIC AND STEE IME LINE, continued L INDUSTRY T

World EcoSteel Industry Timeline Historical Timeline

nomy and ASEAN and Philippine

16 Nov: Asian Growth and Recovery $10bn fund31 Dec: Thai’s Nakornthai Strip mill declares bankruptcy

NDC options 12.5% stake of NSCHottick acquires 81.7% of NSC

BSP raised interest rates by 1.75%Thai’s baht hit by speculative attacks

02 Jul: Philippines devalues peso23 Jul: Laos and Myanmar joins ASEAN

June: G8 meets

01 Jul: US’ Gulf States Steel files Chapter 11.

13 Jul: US restrics Russia’s steel importsMittal acquires France’s Unimetal

06 Oct: British Steel and Koninklijke Hoogovens merge as Corus Steel

17 Nov: Oil prices at nine-year highNov: China joins WTO.

03 May: Europe agree on single currency: euro

Dow Jones Industrial plunged 554 points, 7,2%

Mittal acquires Germany’s Thyssen Duisburg

Thyssen Stahl and Krupp-Hoesch merged as ThyssenKrupp Stahl

Usinor buys Belgium’s Cockerill Sambre

S. Korea’s POSCO privatized

11 Aug: IMF approves two bailout packages for Thailand

15 Jan: E.O. 65 brings down HRC tariff from 7 to 3%

Glencore offers $150M proposal for NSC

07 Nov: NSC ceases operations.

NSC asks DTI for one-year moratorium on Russian steel importsJP Enrile files Senate resolution for NSC inquiry

Philippines invites Spanish group to invest in NSCSEC appoints Monico V. Jacob as NSC lead-receiverCreditors opposes 30-day extension on NSC rehab.

26 May: NSC Liquidator agrees with Allengoal lease proposal.

NSC wins CRC-dumping case vs. Taiwan

Mittal acquires USA’s Inland Steel

17 Aug: Russian “virus” financial crisis

29 Sep: US’ Acme Steel files Chapter 11.

30 Nov: US’ Laclede Steel files Chapter 11.

30 Jun: Britain handovers Hong Kong to China

19 Dec: US House impeaches Clinton01 Jan: European EMU starts

01 Feb: US’ Geneva Steel files Chapter 11.

24 Mar: US’ Qualitech Steel files Chapter 11.

30 Aug: East Timor cedes from Indonesia

03 Jun: North and South Korea sign peace accord.

Dec: Protesters disrupt WTO talks in Seattle04 Jan: Dow Jones Ind average drops 3.17%

INI Steel takes over Kang Won Ind.

01 May: Europe and USA protests global capitalism

14 Aug: Indonesian rupiah plungesPEZA declares NSC a Special Economic Zone

IMF grants $10B standby to Indonesia07 Nov: Seoul Stock Exchange falls 4.00%

04 Mar: NKK announces to liquidate Toa Steel

16 Jun: Corus cuts 1,430 jobs22 Jun: Europe’s steelmakers set B2B.

06 Nov: China’s Baosteel offers IPO.

16 Nov: Wheeling-Pittsburgh files Chapter 11

29 Dec: LTV Steel files Chapter 11

INI Steel takes over Sammi Steel

16 Mar: Danaharta buys Hottick’s NPL.30 Apr: Cambodia joins ASEAN

26 May: NSC’s 5-STCM succumbs to fire!

Dec: 1st ASEAN+3 leaders meet11 Dec: R.A. 8424 amends Income Taxes

NSC closes Pasig’s ETL No. 2.

01 Jan: Kofi Annan becomes UN Sec-Gen

10 Dec: Kyoto Protocol is signed13 Dec: EU plans to admit 6 nations.

20 May: Malaysia enacts Danaharta Act of 199821 May: Suharto resigns after 32 years.

16 Jun: WB warns Asia of deep recession17 Jun: US intervenes to rescue yen

30 Jun: J. Estrada becomes Philippine president

06 Dec: Korea’s Sammi Steel bankrupt

202

ECONOMIC AND STEEL INDUSTRY TIME LINE, continued

203

ECONOMIC AND STEEL INDUSTRY TIME LINE, continued

Figure 38: Economic and Steel Industry Time Line (Sources: as cited above)

204

APPENDIX E

TRANSANCTIONS FOR NSC’S STAKE (1995-1998)

Figure 39: Transactions for NSC’s Stake (1995-1998) (Sources: as cited above)

205

APPENDIX F

ANDERSON-DARLINGTON NORMALITY TESTS

Using Minitab 14, the Anderson-Darlington Test for NSC flat carbon steel

production, particularly cold-rolled coils, does not follow normal distribution.

60000480003600024000120000

Median

Mean

375003500032500300002750025000

A nderson-Darling Normality Test

V ariance 224295032Skewness -0.309852Kurtosis -0.930624N 6

Minimum 0

A -Squared

1st Q uartile 16690Median 332413rd Q uartile 42040Maximum 57922

95% C onfidence Interv al for Mean

25936

0.87

33673

95% C onfidence Interv al for Median

26203 36281

95% C onfidence Interv al for StDev

12695 18266

P-V alue 0.024

Mean 29805StDev 14976

95 % Confidence Intervals

Statistical Summary for NSC CRC Production, 1995-1999

Figure 40: Statistical Summary for NSC CRC Production, 1995-1999 (Data: NSC; Source: Minitab 14)

The Minitab-computed p-value is 0.024 is less than the predetermined

significance level of 0.05. The kurtosis statistic implies that the distribution is

flatter than normal. The box-plot indicates that the data is skewed. There are no

0

indications of outliers.

206

ANDERSON-DARLINGTON NORMALITY TESTS, continued

Using Minitab 14, the Anderson-Darlington Test for NSC flat carbon steel

production,

640004800032000

particularly hot-rolled coils, also does not follow normal distribution.

160000

Median

Mean

4000037500350003250030000

A nderson-Darling Normality Test

95 % Confi

Figure 41: Statistical Summary for NSC HRC Production, 1995-1999 (Data: NSC; Source: Minitab 14)

The 13 is less than the predetermined

significance

V ariance 291349412Skewness -0.357095Kurtosis -0.928944N 60

Minimum 0

A -Squared

1st Q uartile 17399Median 370183rd Q uartile 46333Maximum 63853

95% C onfidence Interv al for Mean

28253

0.98

37071

95% C onfidence Interv al for Median

29567 39699

95% C onfidence Interv al for StDev

14468 20818

P-V alue 0.013

Mean 32662StDev 17069

dence Intervals

level of 0.05. The kurtosis statistic implies that the distribution is

flatter than normal. The box-plot indicates that the data is skewed. There are no

indications of outliers.

Statistical Summary for NSC HRC Production, 1995-1999

Minitab-computed p-value is 0.0

207

APPENDIX G

TABLES OF WORLD / ASEAN STEEL DATA, 1991-2004

Table 25: rl N al ction of Crude Steel, 1991-2004 (Data: IISI, various years) Wo d / ASEA Tot Produ

208

TABLES OF WORLD / ASE TA, 1991-2004, continued Table 26: World / ASEAN H ars)

AN STEEL DA

ot-Rolled Flats Production, 1991-2004 (Data: IISI, various ye

TABLES OF WORLD / ASEAN STEEL DATA, 1991-2004, continued

209

able 27: World / ASEAN Tinplates Production, 1991-2004 (Data: IISI, various years) T

210

TABLES OF WORLD / ASEAN STEEL DATA, 1991-2004, continued Table 28: World / ASEAN Apparent Consumption of Finished Steel, 1991-2004 (Data: IISI, various years)

TABLES OF WORLD / ASEAN STEEL DATA, 1991-2004, continued Table 29: World / ASEAN Apparent Consumption per Capita, 1991-2004 (Data: IISI, various years)

211

TABLES OF WORLD / ASEAN STEEL DATA, 1991-2004, continued Table 30: World / ASEAN Imports of Semi-Finished and Finished Steel, 1991-2004 (Data: IISI, variou

212

s years)

213

TABLES OF WORLD / ASEAN STEEL DATA, 1991-2004, continued

Table 31: World / ASEAN Exports of Semi-Finished and Finished Steel, 1991-2004 (Data: IISI, various years)

214

APPENDIX H

PHILIPPINES STEEL INTENSITY DATA, 1984-2004

ser s (Laplace Conseil, 2007). GNP here is represented by PCI.

le 3 hilippine Steel Intensity Data, 1984-2004

Steel intensity (SI) is the ratio of steel consumption (i.e., steel demand) to Gross National Product (GNP), the monetary value of the total production of final goods and Tab

vice

2: P

215

APPENDIX I

MUL

ctors [X] as tested, for the model (eq. 3), page 40:

TIPLE REGRESSION ANALYSIS: EXTERNAL FACTORS

The following tests and criteria are applied for each respective External Factor, denoted by [X] or particularly World, ASEAN and the Philippines. Using Minitab 14, the relationship between NSC Production versus the four external faw

Thus, for ex For the

Philippines, Test for Ho: nificantly explain the variation in = βIP = 0.

Test for Ha: nificantly explain the variation in

Decision Rule: or equal to α = 0.5 Criteria for

• R2 explained by

• R2

• Mallow model fits the data.

• s A good model should C-p close to the number of predict criteria, the highlighted

ample the [X] could mean [World], [ASEAN], or [Philippine].Index Prices [IP], the Flats IP was used for the World; while for ASEAN and the

the Asia IP was used.

None of the predictors explicitly stated in the model can sigNSC Production. β0 = βXCrude = βXACC = βXSF&F

At least one predictor explicitly stated in the model can sigNSC Production.

Reject Ho is p-value corresponding to F-stat is less than

Best Subset: describes the proportion of variation in the response data

the predictors in the model. (Adj) is a modified version of R that has been adjusted for the number

of predictors in the model. s Cp is another statistic for assessing how well the

is the error standard deviation.

have high R2 and adjusted R2, small s, and ors contained in the model. Using these

model appears to be the best among all the candidates.

216

MULTIPLE REGRESSION ANALYSIS: WORLD FACTORS, continued

Using M e four external factors (World) was tested, for the model (eq. 3), page 40:

initab 14, the relationship between NSC Production versus th

Table 33: Best Subsets Regression for NSC Production and World Factors

2 2

the uhigh h

A g doo model should have high R and adjusted R , small s, and C-p close to

n mber of predictors contained in the model. Using these criteria, the ted model (Model M) appearlig s to be the best among all the candidates.

217

MULTIPLE REGRESSION ANALYSIS: WORLD FACTORS, continued

Table 34: Analysis of Variance: External Factors: World

Analysis: The p-value (regression) of F-Stat is 0.152, which is greater than a pre-selected

-level of 0.05, thus: Ho is NOT REJECTED. The F-value, 23.79%, is less than e confidence level of 95%, thus the current model fits the data well. The

rces

athvariation in NSC Production is decomposed into 1.31E+11 explained souand 1.38E+10 unexplained sources. The Regression Sum of Squares is bigger than the Residual Error Sum of Squares, thus the linear regression is good. The estimated equation is

NSC Production = 186914 + 7.33 World Crude - 27443 World ACC - 11.3 World SF&F Imports + 8232 Flats IP S = 37140.7 R-Sq = 99.0% R-Sq (adj) = 94.8%

Table 35: Multiple Regression Analysis: External Factors (World)

ysis: The T-value for World Crude and Flats Index Prices are greater than α=0.05, thus with 95% confidence, the prediction is significant for these factors. Comparing the coefficient p-values to α=0.05, all predictors are statistically insignificant. Thus, there is no sufficient statistical evidence that at least one of the predictors explicitly stated in the model can significantly explain the variation in NSC Production.

Anal

218

APPENDIX J

MULTIPLE REGRESSION ANALYSIS: EXTERNAL FACTORS (ASEAN)

our

Using Minitab 14, the relationship between NSC Production versus the fexternal factors (ASEAN) was tested, for the model (eq. 3), page 40:

Table 36: Best Subsets Regression for NSC Production and ASEAN Factors

2 2A good model should have high R and adjusted R , small s, and C-p close to of predictors contained in the model. Using these criteria, the the number

highlighted model (Model M) appears to be the best among all the candidates. The Model I was not selected because of the five (5) criteria only three (3) were satisfied. The second best (Model I) was also run in MINITAB's regular regression command and model assumptions were then checked. Comparing the results for both Models, Model M proved sufficient for this study.

219

MULTIPLE REGRESSION ANALYSIS: ASEAN FACTORS, continued

Table 37: Analysis of Variance: External Factors (ASEAN)

Analysis: The p-value (regression) of 0.316 is greater than a pre-selected a-level of 0.05, thus: Ho is NOT REJECTED. Moreover, the F-value, 5.22%, is less than the confidence level of 95%, thus the current model fits the data well. The variation in NSC Production is decomposed into 1.27E+11 explained sources and 6.06E+09 unexplained sources. The Regression Sum of Squares is bigger than the Residual Error Sum of Squares, thus the linear regression is good. The estimated equation, using Model M, is

NSC Production = - 844172 + 71.8 ASEAN Crude - 585 ASEAN ACC - 18.8 ASEAN SF&F Imports + 11740 Asia IP

S = 79019.6 R-Sq = 95.3% R-Sq (adj) = 76.5%

Table 38: Multiple Regression Analysis: External Factors (ASEAN)

Analysis: The T-value for ASEAN Crude and Asia Index Prices are greater than α=0.05, thus with 95% confidence, the prediction is significant for these factors. Comparing the coefficient p-values to α=0.05, all predictors are statistically insignificant. There is no sufficient statistical evidence that at least one of the predictors explicitly stated in the model can significantly explain the variation in

SC Production. N

220

APPENDIX K

MULTIPLE REGRESSION ANALYSIS: EXTERNAL FACTORS (PHILIPPINES)

Using Minit the four

ab 14, the relationship between NSC Production versusexternal factors (Philippines) was tested, for the model (eq. 3), page 40:

Table 39: Best Subsets Regression for NSC Production and Philippine Factors

A good model should have high R2 and adjusted R2, small s, and C-p close to the number of predictors contained in the model. Using these criteria, the highlighted model (Model M) appears to be the best among all the candidates. The Model E was not selected because of the five (5) criteria only three (3) were satisfied. The second best (Model E) was also run in MINITAB's regular regression command and model assumptions were then checked. Comparing the results for both Models, Model M proved sufficient for this study.

221

MULTIPLE REGRESSION ANALYSIS: PHILIPPINE FACTORS, continued

Table 40: Analysis of Variance: External Factors (Philippines)

Analysis: The p-value (regression) of 0.32 is greater than a pre-selected a-level of 0.05, thus at least one coefficient is zero. Furthermore, Ho is NOT REJECTED. The F-value is less than the confidence level of 95%, thus the current model fits the data well. The variation in NSC Production is decomposed into 1.26E+11explained sources and 6.24E+09 unexplained sources. The Regression Sum of

quares is bigger than the Residual Error Sum of Squares, thus the linear gression is good.

Sre The estimated equation is

NSC Production = - 622253 + 154 Phil Crude - 25.4 Phil SF&F Import + 2071 Phil ACC + 8996 Asia IP S = 77843.6 R-Sq = 95.4% R-Sq (adj) = 77.2%

Table 41: Multiple Regression Analysis: External Factors (Philippines)

Analysis: The T-values for Philippine Crude and Asia Index Prices are greater than α=0.05, thus with 95% confidence, the prediction is significant for these factors. Comparing the coefficient p-values to α=0.05, all predictors are statistically insignificant. Thus, there is no sufficient statistical evidence that at least one of the predictors explicitly stated in the model can significantly explain the variation

NSC Production. in

222

APPENDIX L

MULTIPLE REGRESSION ANALYSIS: INTERNAL FACTORS

our

t one predictor explicitly stated in the model can significantly Production.

Decisito α = 0 Table 4

Using Minitab 14, the relationship between NSC Production versus the finternal factors was tested, for the model (eq. 6), page 40:

Test for Ho: None of the predictors explicitly stated in the model can significantly explain the variation in NSC Production. β0 = βPR = βPY = βMY = β%CAR = 0.

est for Ha: At leasT

explain the variation in NSC

on Rule: Reject Ho is p-value corresponding to F-stat 5

is less than or equal .

2: Best Subsets Regression for NSC Production and Internal Factors

A good model should have high R2 and adjusted R2, small s, and C-p close to the number of predictors contained in the model. Using these criteria, the highlighted model appears to be the best among all the candidates. However, to make the final selection, the second best (Model E) were also run in MINITAB's

gular regression command and model assumptions were checked. re

223

MULTIPLE REGRESSION ANALYSIS: INTERNAL FACTOR, continued

Criteria • R describes the proportion of variation in the response data explained by

the predictors in the model. • R2 (Adj) is a modified version of R that has been adjusted for the number

• s is the error standard deviation. Table 43: Analysis of Variance (Internal Factors)

for Best Subset: 2

of predictors in the model. • Mallows Cp is another statistic for assessing how well the model fits the

data.

st p-value (Regression) is shown. The p-value (regression) is smaller an a pre-selected α-level of 0.05, thus at least one coefficient is not zero. The

the

Analysis: Only the firthF-value is less than the confidence level of 95%, thus the current model fits data well. The variation in NSC Production is decomposed into 5.585E+09 explained sources and 5.609E+09 unexplained sources. The Regression Sum of Squares is almost the same the Residual Error Sum of Squares, thus Mean Squares is used statistically for comparison. The Regression Mean Squares of 1.396E+11 is bigger than the Residual Error Mean Squares of 1.079E+08, thus the linear regression is good. Conclusion: Since p-value of F-Stat is zero (0) which is less than or equal to α=0.5, REJECT Ho. There is sufficient statistical evidence that at least one of the predictors explicitly stated in the model can significantly explain the variation in NSC Production. In fact, the test is highly significant.

224

865 PR - 196 PY - 1044 MY + 1263 %CAR

49.9% R-Sq (adj) = 46.0% Table 4 egression Analysis: Internal Factors

MULTIPLE REGRESSION ANALYSIS: INTERNAL FACTOR, continued

The estimated model is NSC Production = - 53813 + S = 10385.8 R-Sq =

4: Multiple R

Analysis: The T-values of both Production Ra Customer Acceptance Rates are

an α=0.05, thus with 95% confidence, the prediction is significant for rs. Comparing the coefficient p-values to α=0.05, only Production

pected increase of 864.6 metric tons (MT) in NSC Production per unit increase in Production Rate, holding Prime Yield,

l Yield and %CAR constant.

e of 1043.6 metric tons in NSC Production per unit increase in Material Yield, holding Production Rate, Prime Yield, and %CAR constant.

expected increase of 1263 metric tons in NSC Production per unit increase in % CAR, holding Production Rate, Prime Yield, and Material Yield constant

te and %greater ththese factoRate (PR) is statistically significant. For Production Rate: Ho vs. Ha Since the p-value of the predictor Production Rate [PR] is equal to 0, the test is significant, In fact, highly significant (using α=0.01). Also, 49.9% of the variation in NSC Production is explained by Production Rate [PR]. Interpretation:

There is an average ex

Materia There is an average expected decrease of 196.1 metric tons in NSC

Production per unit increase in Prime Yield, holding Production Rate, Material Yield and %CAR constant.

There is an average expected decreas

There is an average

225225

ON

Table ors d

AP

S O

ro

PENDIX M

F CORREL

uction

TABLE

to NSC P

ATI

nal Factof Exterelations 45: Corr

226

TABLES OF CORRELATION, continued

Interpretation of Correlation coefficient:

ρ ≈ -1 means a strong NEGATIVE correlation. As one variable increases, there is a tendency for the other to decrease and vice versa.

C Production and ASEAN ACFS at p=0.05=α (0.05) • C Produ n and ASEAN ACC at p=0.002 < α (0.05) • C Produ n and Global Index Prices at p=0.008 < α, also < 0.01 • C Produ n and Flats Index Prices at p=0.017 < α (0.05) • C Produ n and Asia Index Prices at p=0.006 < α, also < 0.01 • C Produ n and N. American Index Prices at p=0.022< α, also < 0.01 • rld Crud d ASEAN Crude at p=0.00 < α (0.05), also < 0.01 • rld Crud d ASEAN SF&F Imports at p=0.007 < α, also < 0.01 • World Crude and World SF&F Imports at p=0.000 < α, also < 0.01 • World Crude and ASEAN ACFS at p=0.005 < α, also < 0.01 • World Crude and World ACFS at p=0.000 < α, also < 0.01 • ASEAN Cr and Philippine SF&F Imports at p=0.016 < α (0.05) • ASEAN Cr and ASEAN SF&F Imports at p=0.00 < α, also < 0.01 • ASEAN Cr and World SF&F Imports at p=0.00 < α, also < 0.01 • ASEAN Cr and Philippine ACFS at p=0.021 < α (0.05) • ASEAN Cr and ASEAN ACFS at p=0.000 < α (0.05), also < 0.01 • ASEAN Cr and World ACFS at p=0.000 < α (0.05), also < 0.01 • Philippine C e and Philippine ACC at p=0.006 < α, also < 0.01 • Philippine C e and ASEAN ACC at p=0.002 < α, also < 0.01 • Philippine I rts and ASEAN SF&F Imports at p=0.001 < α, also < 0.01 • Philippine I rts and Philippine ACFS at p=0.000 < α, also < 0.01 • Philippine I rts and ASEAN ACFS at p=0.002 < α, also < 0.01 • Philippine I rts and Philippine ACC at p=0.001 < α, also < 0.01

ρ ≈ 1 means a strong POSITIVE correlation. As one variable increases, there is a tendency for the other to increase as well and vice versa. ρ ≈ 0 means a WEAK or NO correlation.

Analyses of Table 45: Correlations of External Factors to NSC Production

True Correlation for all Pairs are not zero, thus Correlation is significant, respectively. The following pairs are highly significant:

• NSNSNSNSNSNSWoWo

ctioctioctioctioctioe ane an

ude ude ude ude ude ude

rudrud

mpompompompo

227

Table 46: Correlation of Internal Factors to NSC Production

An s

Tru Cres The l

1

, also < 0.01

1

aly es of Table 46: Correlation of Internal Factors to NSC Production

e orrelation for all Pairs are not zero, thus Correlation is significant, pectively.

fo lowing pairs are highly significant: • NSC Production and Material Yield at p=0.001 < α (0.05), also < 0.0• NSC Production and Quality (%CAR) at p=0.013 < α (0.05) • NSC Production and Production Rate at p=0.000 < α (0.05)• Quality (%CAR) and Prime Yield at p=0.024 < α (0.05) • Quality (%CAR) and Material Yield at p=0.000 < α (0.05), also < 0.01 • Production Rate and Material Yield at p=0.004 < α (0.05), also < 0.0• Production Rate and Quality (%CAR) at p=0.05=α

228


World, ASEAN and Steel Production, in Metric Tons

Table 47: ion versus Correlation of NSC Flats ProductPhilippines

An s RC and ude pro c

aly is: CRC) production and the Philippine crude production, World cr

The data shows a significant correlation between NSC crude (H

du tion, World Hot-Rolled (HR) production.

229


Table 48: Correlation of NSC Flats Production versus World and ASEAN Steel Demand—Apparent Consumption of Finished Steel, in Metric Tons, and Apparent Consumption per Capita, kg

Analysis: NSC Crude (CRC) production is significantly correlated to the ASEAN Apparent Consumption per capita (ACC) and World Apparent Consumption of Finished Steel (ACFS).

230


Table 49: Correlation of NSC Flats Production versus World, ASEAN & Philippines Steel Trade, in Metric Tons

Analysis: NSC flat carbon steel crude production is significantly correlated Philippine Hot-Rolled Plates (HRP), Tinplates (TP) Imports and is significantly correlated to the World Semi-Finished and Finished (SF&F) steel imports.

231


Table 50: Correlation of NSC Flat Steel Production versus World & Regional rly Steel Prices, in US$ Yea

Analysis: NSC flat carbon steel production is significantly correlated to the following annual steel prices: Global, Flats, Asia, North American Steel Price Indices. Similarly, NSC production is not significantly correlated to most of the Average Import annual prices for both HRC and CRC.

232


Table 51: Correlation of NSC Flat Steel Production versus Monthly World & Regional Steel Prices, in US$

233


Table 51: Correlation of NSC Flat Steel Production versus Monthly World & Regional Steel Prices, in US$, continued

Analysis: NSC flat carbon steel production is highly, significantly correlated to the following monthly steel prices: Global, Flats, Asia, North American Steel Price Indices.

234


Table 52: Correlation of NSC Monthly Production Tonnage vs. Prime Yield and Material Yield, in percent

Table continued next page.

235


Table 52: Correlation of NSC Monthly Production Tonnage vs. Prime Yield anMaterial Yield, in percent,

d continued

Analysis: NSC (HRC and CRC) production is not significantly correlated to Actual % Prime Yield, whiMaterial Yield.

le it is highly, significantly correlated to Actual %

236


Table 53: Correlation of NSC Monthly Production Tonnages and Production Parameters

Analysis: Monthly NSC production is significantly correlated to monthly Production Rate and Quality Acceptance Rate; is not significantly correlated to Mill Utilization.

237


Table 54: Correlation of NSC Quarterly Production Parameters (Data: NSC)

Analysis: Quarterly NSC production is significantly correlated to Material Yield, (MY) and PKL2 Production Rate (PR), while shows no significant correlation to actual Prime Yield (PY), and Capacity Utilization.

i

Analysis: Quarterly NSC (CRC) production is positively correlated to all Steel Price Indices, but show higher correlation to Asia Flats and Global Steel price ndices.

238

, CRUspi) Table 55: Correlation of NSC Production vs. Quarterly World Steel Index Prices

(Source: NSC


239

239

APPENDIX N

NSC STEEL IMPORTS (1994 – 1999)

– 1999)

published data available for 1994Q3 to 1996Q4; No raw steel imports planned for 1999Q4.

Table 56: NSC Steel Imports (1994

Source: NSC; Note: No

240240

APPENDIX O

PHILIPPINE STEEL SCENARIO

Figure 42: Philippine Steel Scenario in 1995 (Source: NSC, 1998q)

241

PHILIPPINE STEEL SCENARIO, continued

Figure 43: Philippine Steel Scenario in 2000 (Author’s analyses)

242

APPENDIX P

FLAT STEEL MERGERS & ACQUISITIONS, 2000

Table 57: Flat Steel Mergers & Acquisitions, 2000 Target / Acquisition Acquirer Start Date

LTV asset W. L. Ross 27.02.2002 Birmingham Steel Corp. Nucor Corp. 14.02.2002 National Steel Corp., U.S.A. United States Steel Corp. 01.01.2002 LTV Copperweld Corp. 01.12.2001 Atlas Steels (Australia) Pty Ltd 01.12.2001 Uzbekmetzavod 01.10.2001 Belle Steel Edgcomb Metals Company 21.08.2001 Irish Ispat Limited 01.07.2001 Heartland Steel Cia Siderurgica Nacional 21.06.2001 Great Lakes Metals 30.04.2001 Usinor, Arbed and Aceralia Arcelor 16.02.2001 CSC Ltd. 12.02.2001 Caemi Mineracao e Metalurgia S.A. BHP - Broken Hill Pty Co Ltd. 12.02.2001 Nova Hut AS 01.02.2001 Antara Steel Mills Sdn Bhd Amsteel Mills Sdn Bhd 01.02.2001 Kawasaki Steel Corp. NKK Corp. 04.01.2001 Isdemir Erdemir - Eregli Demir 01.12.2000 VSZ Ocel Ltd US Steel Group, USX Corp. 24.11.2000 Fuchs Systemtechnik Voest-Alpine Ind. 15.11.2000 Grupo Simec, S.A. de C.V. Industrias CH SA 01.11.2000 Chicago Cold Rolled 01.11.2000 Metal Services Int'l-Louisville, Ky. Mill Steel Co. 08.10.2000

Note: Highlighted M&As are completed deals on Source: Steel Profiles, http:www.steelprofiles.c

date stated. om

243

FLAT STEEL MERGERS ITION, 2000, continued

Table 57: Flat Steel Mergers & Acquisitions, 2000, continued

AND ACQUIS

Target / Acquisition Acquirer Start Date Huntco-Arkansas cold mill 01.10.2000 LTV Tin US Steel Group, USX Corp. Plates Operation 01.10.2000 AG der Dillinger Huttenwerke 28.09.2000 American Steel & Wire Co. Charter Steel 28.09.2000 Outokumpu Avesta Sheffield AB 26.09.2000 Ste des Aciers d'Armature Riva Group 04.09.2000 Siderurgica SA Hunedoara 01.09.2000 MSC Pinole Point Steel Inc. 01.09.2000 Acos Villares SA Sidenor SA 27.08.2000 IFC Kaiser, Inc. The Hatch Group of Canada 25.08.2000 Vitkovice a.s. 23.08.2000 Raymond steel plant G Gesellschaft EB 21.08.2000 Metaltech, NexTech, Galvtech on Industries Inc. Worthingt 16.08.2000 Rohrwerk Neue Maxhutte 15.08.2000 Neue Maxhuette-NMH Stahlwerke 15.08.2000 North Ltd Rio Tinto Limited 03.08.2000 Acme Steel WCI Steel Inc 01.08.2000 CSR SA Resita Noble Ventures 01.08.2000 United Steel Mills Ltd (USM) 06.07.2000 Salem Plant 05.07.2000 Poldi Steel Trinecke Zelezarny AS 01.07.2000 WorldClass Processing Inc. Samuel Manu-Tech Inc. 26.06.2000 Ornasteel Corp (M) Sdn Bhd 23.06.2000 Group Steel Corp. (Malaysia) 23.06.2000 Amorim SA Aços Inoxidáveis Acesita SA 16.06.2000 BHP Coated Steel Corp. Grupo Imsa, S.A. de C.V. 14.06.2000 Mannesmann-Rohrenwerke AG Salzgitter AG 13.06.2000

Note: Highlighted Mergers & Acquisitions are completed on date stated. Source: Steel Profiles, http:www.steelprofiles.com

244

F

able 57: Flat Steel Mergers & Acquisitions, 2000, continued

LAT STEEL MERGERS AND ACQUISITIONS (2000), continued

T

Target / Acquisition Acquirer Start Date Toma Metals, Inc. Reliance Steel & Aluminum 06.06.2000 Samitri Cia Vale do Rio Doce 31.05.2000 Sammi Steel Co Ltd Inchon Iron & Steel Co., Ltd. 02.05.2000 Izhorskie Steelworks Severstal JSC 26.04.2000 Email Limited Smorgon Steel Group Ltd. 19.04.2000 Alkar Steel, Inc. Cold Metal Products, Inc. 02.04.2000 Ryerson Tull's subsidiary (Mexico ) Grupo Collado 22.03.2000 Gibraltar's Chattanooga Metals USA, Inc. 21.03.2000 Hagerty Steel division Reliance Steel & Aluminum 11.02.2000 Auburn Steel Co Inc (Austeel) Nucor Corp. 01.02.2000 First Miss Steel, Inc. Hoganas AB 20.01.2000 Rollforming Corp. (RFC) Voest-Alpine Stahl AG 07.01.2000 Sammi Steel Co Ltd Inchon Iron & Steel Co., Ltd. 01.01.2000 Indian Iron & Steel Co Ltd (IISCO) 01.10.1999 Perwaja Steel Sdn Bhd (Malaysia) 06.09.1999 Sydney Steel Corp. (Sysco) Duferco Group, Duferco SA 01.08.1999 Sendzimir Iron & Steel Works) 01.01.1999 Huta Cedler 01.01.1999 Huta Florian 01.01.1999 Hanbo Steel Co., Ltd. 01.01.1999 Huta Katowice 01.01.1999

Note: Highlighted M&As are complete S w.steel

d deals on date stated. ource: Steel Profiles, http:ww profiles.com

245

APPENDIX Q

GEOGRAPHICAL LOCATIONS OF STEEL-PRODUCING COUNTRIES

Table 58: Geographical Locations of Steel-Producing Countries ISI, 2007; CRU,(Sources: I 2004)

246

APPENDIX R

LIST OF ASIAN STEEL COMPANIES

Table 59: List of Asian Steel Companies Coun HR CR GAL try/Company Company Location Association of Southeast Asian Nations

BlueScope Steel Malaysia Klang 0.15 Cold Rolling Industry Klang 0.20

Indonesia Amien Steel Works Surabaya 0.04 BHP & Krakatau Steel Cilegon 0.10 Bisma Narendra 0.10 CRMI Cilegon 0.85 CV Wira Mustika Indah Medan 0.02 Dhama Niaga Palembang 0.02 Essar Dhananjaya Bekasi 0.20 Fumira Semarang 0.06 Fumira Jakarta 0.15 Industri Baja Garuda Medan 0.04 Kalimantan Steel Surabaya 0.03 Krakatau Steel Cilegon 2.70 0.95 Polyguna Nusantra Padang 0.02 PT Industri Galvanneal Mas Medan 0.05 PT Industri Baja Berlian Medan 0.10 PT Kerismas Witikco Makmur Jakarta 0.05 PT Tumbakmas Inti Mulia Bekasi 0.06 PT Witikco Bitung 0.02 PT Baja Inti Manunggak Surabaya 0.22 0.06 Semarang Makmur Semarang 0.05 Sermani Steel Ujungpadang 0.03 Tumbakmas Djaja Surabaya 0.02 Total Indonesia 2.70 1.37 0.74 Malaysia

247

LIST OF ASIAN STEE , Table 59 continued

Country/Compa R CR GAL Malaysia, continued Federal Iron Works Selangor 0.20

0.20 0

0.1

ysia 2.20 1.16

vite

ron & Steel

0.10

ting 0.30

yong

nes 1.70 0.90

teel Industry Phut, Rayong 0.30 k

L COMPANIES

ny Company Location H

Group Steel Ayer Keroh Megasteel Selangor 2.2 0.40

0.5 Ornasteel Ayer Keroh lvanizing uching

6 Yung Kong Ga K 0 Other galvanizers Various

la 0.09

Total Ma 0.74 Philippines

an

Bacnot Calamba 0.03 Bacnotan Davao 0.02 Bacnotan Poro

a,Ca

0.02 0.06 Chuyayaco

teel Carmon

Group S Valenzuela es

0.04 Jacinto I Novalich 0.03 Luzvizain Industrial Cebu 0.04 Mindanao Steel Mindanao 0.34 NSC Iligan 1.70 0.50 Philippine Steel Coa Laguna

0.12

Philippine Steel Coating Balayan 0.24 Puyat Steel Mandalu 0.04 Puyat Steel Rosario 0.15 Rizal Integrated Steel

ustries Cainte 0.05

Sonic Steel Ind Cavite

0.03 Southern Industrial Pro

s Bohol 0.03

Sugar Steel Industrie Cebu 0.03 Tower Steel Marikina

ppi 0.06

hailand

Total Phili 1.33 T

amuthprakarn

Bangkok S S 0.02 0.12 BlueScope Thailand Mapta 0.15

0.07 Far East Iron Works Bangko

248

LIST OF ASIAN STEEL COMPANIES, Table 59 continued

Country/Company Company Location HR CR GAL Thailand, continued

1.50 eel 2.60

ai 0.10 d Steel

teel han 1.00 hailand Iron Works

ayong 1.80 rated CR 0.82 nizers

Thailand 5.90 3.14

City City

ietnam

Nakornthai Strip Mill Chonburi Sahaviriya St Bangsaphan Sangkasi Th Bangkok Siam Unite Rayong 1.00 Thai Coated Sheet Bangkok 0.14 Thai Cold Rolled S Bangsap T Bangkok 0.09 Siam Strip R Siam Integ Rayong 0.50 Other galva 0.05 Total 1.22 Vietnam Posvina Ho Chi Minh 0.03 Southern Steel Corp. Ho Chi Minh 0.04 Total V 0.07 A 12.500 6.566 4

ss outheast Asi s ociation of S an Nation .100

East Asia

Steel

Steel Co. ity, Liaoning 6.50 3.00 , Henan 0.70

o. hanghai 9.40 4.20 i 3.03

City, Neimongol 2.10 Steel Co. , Liaoning 4.00 1.50

hengde Iron & Steel Iron & Steel Co. hongqing City, Sichuan 0.80 0.55 0.30

0.40 0.30

o. Fujian 0.40

China Angang New 0.29 Anshan Iron & Anshan C 0.50 Anyang Iron & Steel Anyang Baoshan Iron & Steel C Baosteel, S 1.71 Baosteel Shangha Baotou Iron & Steel Co. Baotou Benxi Iron & Benxi City 0.35 C Hebei 0.50 Chongqing C Chunawei Iron & Steel Lianje, Sichuan Echeng Iron & Steel Ezhou, Hubei Fujian Kaikan Steel C Sanming,

249


Country / Company

el teel, Guangzhou el Co. Hebei 1.30 0.49

& Steel u 0.40 n, Guanzhou 0.40

up Iron & Steel 0.50 1.10 l 0.90

0.20 Steel n City, Hebei

0.80 el Co. 0.60

aiwu Iron & Steel Iron & Steel Co. iaoning 2.20 on & Steel ngxi 2.00

l Co. 1.60 0.50 eishan Group angsu 2.10

gdong anjing Iron & Steel anjing, Jiangsu .50

a Iron & Steel Co. nzhihua, Sichuan 2.50 0.70 0.15 alvanised Sheet Co. hangjiagang, Jiangsu 0.10

o. alian, Liaoning d

eet

i

. , Hubei 4.20 0.20

0.15

0.10

Company Location HR CR GAL China, continued Guangzhou Iron & Ste Zhujiang S 1.10 Handan Iron & Ste Handan City, 1.50 Huangzhou Iron Huangzho Hongde Shaogua Hualing Iron & Steel Gro Lianyuan 0.11 Hunan Valin Iron & Stee Jieyang Daxing Jieyang Jinxi Iron & Tangsha 0.50 Jiuquan Iron & Steel Jiuquan Kunming Iron & Ste 0.35 L Laiwu 0.60 Lingyuan L Liuzhou Ir Liuzhou City, Gua Maanshan Iron & Stee Maanshan, Anhui 0.20 M Baosteel, Nanjing, Ji Nanfang Iron & Steel Co. Sanshui, Guan 0.10 N N 0 Panzhihu Pa Posco G Z Pujing Steel Sheet C D 0.10

Shenzhen Pohang CoateSheet Shenzhen, Guangdong

0.10

Shunde Pohang Coated Shon & Steel Co.

hanxi

0.15 Taiyuan Ir Taiyuan, S 2.00 0.20 Tangshan Iron & Steel

Tangshan Jianlong Iron &Tangshan City, Hebei 1.80

Steel Tangshan City, Hebe 1.20 0.20 Wuhan Iron & Steel Co Wuhan 4.50 Wuxi Yangtze Sheet.Co. Wuxi, Jiangsu 0.13 0.20 Yieh Phui Enterprise Co Zhongshan Baohua Zhongshan 0.20 Zhongshan Jiemin Zhongshan

250


Country / Company Company Location HR CR GAL China, continued Zhujiang Steel Guangzhou, Guangdong 0.80

5 1

el Sheet 0.48 0.36

hiba 3.05 0.66 a 4.65 1.92

1.08 0.78 a 2.77 1.08

kayama 0.36 ing 0.24

0.07 g 0.24

0.14

ks 0.18

5.70 4.32 0.16

4.90 3.67 5.70

0.76

5.00 s akayama 0.70

0.04 0.40 e 0.10

Total China 5.93 8.93 5.11 Japan Daido Ste Amagasaki Igeta Steel Sheet Osaka 0.10 0.12 JFE Holdings C 5.40 JFE Holdings Fukuyam 8.20 JFE Holdings Keihin 3.60 JFE Holdings Mizushim 5.00 JFE Holdings O 0.30 Kawatetsu Galvanis Chiba Kawatetsu Galvanising Matsudo Kawatetsu Galvanisin Tamashima Kobe Steel Kakogawa 3.60 1.70 1.18 Kokkai Koki Ebetsu Maruichi Steel Tube Ltd Takuma Plant 0.36 Nakayama Steel Wor Osaka Nippon Steel Hirohata 2.90 0.20 Nippon Steel Kimitsu 1.91 Nippon Steel Muroran

Nippon Steel Nippon

Nagoya Oita

1.69 Steel

Nippon Steel

Yawata Ichikawa

4.70 4.91 0.92 Nisshin Steel

Nisshin Steel Nisshin Steel

Kure 4.00 Osaka 0.38 Nisshin Steel Sakai 2.39 0.74 Sumitomo Metal Industries Kashima 3.40 1.38 Sumitomo Metal Industrie W 1.32 Taiyo Steel Funabashi Toho Sheet & Fram Yachiyo

251


Country / Company Company Location HR CR GAL Japan, continued Tokushu Kinzoku

okyo Steel eel Sheet udamatsu 0.25 0.15

orks orks

el Works 5 3 1

ay 0.65

2.00

l

ng 15.20 8.06 1.81

uth Korea 2 1

2.00 rp. iung 2.20 0.50

ounty 0.06 ung

.

Saitama 0.01 T Okayama 1.20 0.25 0.24 Toyo St K Yodogawa Steel W Ichikawa 0.26 0.33 Yodogawa Steel W Kure 0.48 0.38 Yodogawa Ste Osaka 0.09 Total Japan 9.90 6.03 7.62 South Korea Dongbu Steel Inchon 0.48 0.55 Dongbu Steel Seoul 0.68 Dongbu Steel Asan B 0.35 Hanbo Steel Asan Bay Hyundai Pipe Sunchon 1.80 Jinbang Stee - 0.20 Pocos - 0.28 Pohang Coated Sheet Pohang 0.25 Posco Kwangya 1.80 Posco Pohang 6.70 0.30 Union Steel Pusan 1.15 0.85 Others Various 0.20 Total So 3.90 3.03 6.38 Taiwan An Feng Kaohsiung China Steel Co Kaohs 7.55 Hong Yun Tainan C Jenn An Kaohsi 1.00 0.30 Kao Hsing Chang Kaohsiung 0.25 Kao Hsing Chang Yung An 0.12 Li San Nr. Taipei 0.10 Mayer Steel Pipe Corp 0.02

252


Country / Company Company Location HR CR GAL Taiwan, continued

g 0.20 rp.

ipei ng 2.40

i Sen aohsiung 1.20 0.75

iwan 11.95

Ornatube Kaohsiun 0.64 President Co 0.60 Shang Shing Kaohsiung 0.04 Sheng Yu Steel Co. Kaohsiung 0.45 0.70 Ta Fu Nr. Ta 0.15 Yieh Loong Kaohsiu Y Kaohsiung 0.12 Yieh Phui K Total Ta 6.46 2.94 East Asia 15 .446 32.1.680 74 050

HR CR GAL South Asia Bangladesh

l Products akar 0.06 ld Rolling Mills akar 0.15

ngladesh 0.00 0.21

n Ltd. ngal el & Strips

Steel & Strips or Mumbai 0.50 orp of Gujarat ssar Steel azira 2.40

a ashik 0.20 stries 0.50 0.18

0.18

Steel rks,

Steel s,

tra 0.40 ijayanagar Karnataka 2.00

ujarat 0.10

Abul Khair Stee Dh 0.02 PHP Co Dh Total Ba 0.02 India Bhusha Bengihatti, West Be 0.30 0.10 Bhushan Ste Delhi 0.50 Bhushan Khopoli, C 0.25 0.08 E H EBG Indi N Ispat Indu Kalmeshwar Ispat Industries Dolvi 2.40 JAI Corp Maharashtra 0.09

JVSL - Jindal Iron &Tarapur WoMaharashtra Vasind Work

0.60 0.45

JVSL - Jindal Iron & Maharash 0.35 Jindal V Torangallu, KR Steelunion G

253


Regional Group H

el 0.60 ries ithampur 0.07

0.15

0.17 0

eel teels 0.12

uchi strips & alloys karo

ail Rourkela 6 lem 0.07

aryana 0.06 pur pur 2.80 0.70

GS - Uham Galva Steel otal India 15.39 8.02 3.72

sim 0.83 0.10

0.83 0.20

R CR GAL India, continued Lloyds Ste Wardha 0.35 0.13 Metalman Indust P 0.10 National Steel Indore 0.15 NSL Hyderabad 0.07 NSL Madhya Rathi Alloys Alwar .10 Raymond St Bombay Rocklane S Calcutta 0.10 0.10 R Dhar 0.06 Sail Bo 3.36 1.49 0.17 S 1.44 0.67 0.1 Sail Sa Surya Roshni H Tinplate Company Jamshed 0.12 0.09 Tata Steel Jamshed 1.30 U Khalpoli 0.50 0.35 T Pakistan Pakistan Steel Mills Bin Qa 0.20 Total Pakistan 0.10South Asia 16. .430 3.840215 8 Ass f Southeast Asi ions ociation o an Nat 12.500 6.566 4.100East Asia 151.680 74.446 32.050South Asia 16.215 8.430 3.840 Total Asia 180.3 9.442 39.990

Sources: CRU,SEAISI

95 8

254

APPENDIX S

FLAT STEEL CORPO ATE BANKRUPTCIES 98-20

Table 60: Flat Steel Corporate Bankruptcies (1998-2002)

R (19 02)

Company Segment Country Date ile F d Nat Steel, USA uction SA 2002 ional Steel Prod U 03-Jun-She Steel Corp oduction USA 07-Dec-2001 ffield Steel Pr Bet el Corp. Production USA 15-Oct-2001 hlehem Ste Steel Ga ry Processing SA 10-Au 2001 lvPro Intermedia U g-Riv rp. ry Processing USA g-200erview Steel Co Intermedia 07-Au 1 Alg roduction ana p -200oma Steel Inc. Steel P C da 23-A r 1 Gre LC iary Processing SA p 2001 at Lakes Metals L Intermed U 11-A r-Rep c Technologies Intl’l roduction USA pr-200ubli Steel P 02-A 1 Tric eel duction USA ar-200o St Steel Pro 23-M 1 GS stries, Inc. roduction SA 2001 Indu Steel P U 07-Feb-Hea ry Processing SA 2001 rtland Steel Intermedia U 26-Jan-CS ction SA n-200C Ltd. Steel Produ U 12-Ja 1 LTV oration ction SA ec-200 - The LTV Corp Steel Produ U 29-D 0 Nor Steel & Wire ction USA ec-200thwestern Steel Produ 19-D 0 Wh l oduction SA ov-200eeling-Pittsburgh Stee Steel Pr U 16-N 0 J & Structural Inc. rocessing USA n-200 L Intermediary P 30-Ju 0 Nat l Corp. teel Production hilippine 01-Jun-2000 ional Stee S P sGu uction SA 9lf States Steel Inc Steel Prod U 01-Jul-19 9 Qu oration ion USA ar-199alitech Steel Corp Steel Product 22-M 9 Nak rnthai Strip Mill Public ion Thailand ec-199o Steel Product 31-D 8 Laclede Steel Co. eel Production US ov-19St A 30-N 98 Acme Metals Incorporated Steel Production US p-1 A 29-Se 998

Table 61: Companies That Ended in Bankruptcy

Company Segment Country Date

Ended Diosgyori Acelmuvek (DAM) Steel Production Hungary 04-Feb-2001 Geneva Steel Steel Production USA 04-Jan-2001 Altos Hornos de Mexico Steel Production Mexico 21-Aug-2000 WorldClass Processing Intermediary Processing USA 26-Jun-2000 Sammi Steel Co Ltd Steel Production S. Korea 12-Jun-2000 AL Tech Specialty Steel Co., Steel Production USA 05-Nov-1999

Source: Steel Profiles, http:www.steelprofiles.com

255

APPENDIX T

STEEL INDUSTRY TARIFF SCHEDULE, 1991-2000

Table 62: Steel Industry Tariff Reform Schedule, 1991-2000 ) (Source: NSC

256

APPENDIX U

NSC’S MILL UTILIZATION, 1995-1999

.

NSC Production vs Mill Utilization, 1995-1999

25

35

45

55

65

75

85

J FMAMJ JASONDJ FMAMJ JASONDJFMAMJ JASONDJFMAMJ JASONDJFMAMJ JAS

1995 1996 1997 1998 1999

OND

% Utilizatio

0

10

20

30

40

50

60'000 metric tonsn

Production %Utilization

Figure 44: NSC Production vs Mill Utilization, 1995-1999 (Data: NSC)

One manager suggested that instead of production rate, the mill utilization

would be a more relevant quantity to correlate with NSC production. Figure 44

shows that NSC’s mill utilization, again based on the input mill—Pickling Line No.

2—fluctuated between 45% and 80%. During the Asian Financial Crises, NSC

utilization hovered at 65% until NSC closed in 1999.

257

NSC’S MILL UTIL -1999, continued

In contrast below; NSC mill

utilization is negatively correlated to NSC steel production. Data shows that NSC

oduction is not significantly correlated to NSC mill utilization. The correlation

IZATION, 1995

to Production Rate, refer to Table 63

Pr

coefficient of p-value=0.077 > (α=0.05). As mill utilization increases, there is a

tendency for NSC production to decrease, and vice versa.

Table 63: Summary of Correlations: NSC Production, Production Rate and Mill

Utilization

Lamberte, et. al. (1999) examined the impacts of the Asian Financial

Crises 1997-98 on 541 Philippines manufacturing firms and found a clear

indication that their capacity utilization rates started to decline even before the

onset of th ly 1997. Capacity utilization continued to drop possibly

caused

e crisis in Ju

by both cyclical and structural factors—as the crisis stretched to 1998

then Lamberte recommended drastic monetary and fiscal policies to kindle

aggregate demand in 1999.

258

APPENDIX V

NSC CORPORATE PHILOSOHY

To our Country To be a major instrument in the country’s development, primarily in terms

of advancement of steel-making and steel-using technology, utilization of domestic raw materials, training and employment of local labor, supply of steel materials to major industrial users and improvement of the overall trade balance.

is s ith the market shall be guided by the three norms of sufficient quantities, acceptable quality and competitive prices

To our Investors

To earn for our shareholders sufficient returns on their investment and to safeguard the interest of creditors in the Company.

Towards Management

To operate with a positive and dynamic philosophy of management. This will require the continuous and consistent upgrading of the sophistication and effectiveness of managers under a development program that will assure an adequaCompa

ng-term and mutually beneficial basis.

ource: NSC

To our Customers To become the reliable source for the country’s steel requirements. Th

tionship wupply rela

te supply of competent executives for the long-range needs of the ny.

To our Employees To recognize that the personal interests of employees are not alien to

those of the company. To maintain high standards of performance and realistic and fair compensation for that competence.

To our Community

To act as a responsible and concerned corporate citizen in the communities where we have a presence and to encourage our officers, employees, and representatives to do the same. To create an environment characterized by high ethical tone, honest and forthright actions, and maintain external relationships on a lo S

259

APPENDIX W

NSC’s CORPORATE QUALITY POLICY (1998)

To become a world-class compa teel industry, we are committed to prod

We take the lead in assuring achievement of this commitment by providing proactive, hip through process-

pany as a reliable partner with whom they can plan their future.

rganization

We measure our o he customers’ point

will strive for the achievement of our vision, we will work as a team committed to a common object partner of our customer.

Ibrahim bin Bidin Tom L. Galanis Chairman, Interim Managemen Chief Executive Officer

ny in the global suce and market products and services that consistently meet our

customers’ needs and expectations. In support of this commitment, we will ensure that:

responsible leadersthinking and customer-focused actions and behaviors.

Our customers and other stake holders see our com

We are empowered, committed, recognized and our values and objectives are in harmony with that of our o

verall performance from tof view and benchmark them against best-in-class, and our internal and external processes are always anchored on continuous improvement and customer focus.

At NSC, we

ive—to be a reliable

t Committee

Source: NSC (1998q)

260

APPENDIX X

CO

d materials for a self-reliant and orld-class NSC contributing to the development of a progressive and

indus l

tion’s role in ality cold rolled products and services that consistently meet the needs and expectations of our custo

Cc

Effective, efficient, and productive operations and processes.

Highly motivated, well-trained, responsible and value-driven workforce.

Continuous improvement of operations and processes, and king conditions and consistent ad

n r

we will always bear upon ourselves the responsibility and commitment to QUALITY in all aspect of our work.

Source: NSC (1998)

LD STRIP MILL VISION AND QUALITY POLICY

Cold Strip Mill Vision

A cohesive, people-oriented, professional and efficient organization dedicated to producing superior quality cold rollew

tria ized nation.

Cold Strip Mill Quality Policy

To be a world class Cold Mill in support of National Steel Corporathe country development, we commit to provide qu

mers. We will achieve this through:

ontinuous close interactions and mutual understanding with our ustomers and suppliers.

Highly reliable and available process equipment and support facilities.

Safe wor herence to theprinciples of environmental protectio and prese vation.

In pursuit of the above,

261

APPENDIX Y

CUSTOMER COMPLAINTS, 1995-1999

Table 64: Customer Complaints, 1995 - 1999

Source: NSC, CSM QA

262

APPENDIX Z

NSC FU (1993) NCTIONAL TABLE OF ORGANIZATION

Figure 45: NSC Functional Table of Organization (1993) (Source: NSC)

263

APPENDIX AA

NSC FUNCTIONAL TABLE OF ORGANIZATION (2000)

Figure 46: NSC Functional Table of Organization (2000) (Source: NSC)

264

APPENDIX BB

NSC 0) ’S CSM FUNCTIONAL TABLE OF ORGANIZATION (200

Figure 47: NSC’s CSM Function Table of Organization (2000) (Source: NSC)

265

APPENDIX CC

NS 4) C LIQUIDATOR FUNCTIONAL TABLE OF ORGANIZATION (200

Figure 48: NSC Liquidator Functional Table of Organization (2004) (Source: NSC)

266

APPENDIX DD

GSPI FUNCTIONAL TABLE OF ORGANIZATION (2007)

Organization (2007) Figure 49: GSPI Functional Table of Source: Attempts to secure a copy of the above made in November 2006 was indomitably denied citing its confidential nature. Refer to text for more details, see page 132.

267

267

APPENDIX EE

NSC: BEFORE, THEN AND NOW

Comparative Table of NSC: Before, Then and Now

Table 65: A

268

268

NSC: BEFORE W, continued

Table 65: A Comparative Table of NSC:

, THEN AND NO

Before, Then and Now, continued

269

269

ESEARCH

Figure 50: FGenerated using Joerg

APPENDIX FF

FREEMIND CONCEPT-MAP FOR THIS R

reeMind Concept Map for this Research.

Mueller’s (2004). FreeMind v.0.8.0.

270

APPENDIX GG

SWOT MATRIX

Table 66: SWOT Matrix

Refer to text for discussion.

271

SWOT ued

Table 66: SWOT Matrix, continued

MATRIX, contin

Refer to text for discussion.

272

APPENDIX HH

SPECIAL ACKNOWLEDGMENT FOR FORMER NSC PERSONNEL

footnotes.

* Acknowledgements to the following former and present NSC managerial,support, operations, quality assurance and maintenance supervisors, staff and assistant engineers, for their valuable contribution and timely assistance in the preparation of this thesis, namely:

Engr. Ruben Pinaroc, NSC Iligan Plant Resident Manager (Liquidator): for giving me advice to purse my MBM again and for one-on-one talks about NSC’s past, present and the future.

Engr. Esteban V. Cabrera, Jr, formerly NSC Executive Vice President for Manufacturing; for pointing me to a number of right persons regarding the questions raised in the informants interview.

Engr. Leonardo “LAC” A. Calderon, formerly NSC Assistant Manager, Operations, CSM and presently GSPI’s Area Manager, Finishing Lines, CRM: for imparting his theories, anecdotes, observations of NSC andGSPI, and for his understanding on my spur-of-the moment leaves of absence in connection with my thesis preparation.

Engr. Nestor “Bugoy” G. Mirafuentes, formerly NSC’s Head ofIndustrial Engineering and Head, Nerve Center then Head, AssetDisposal, NSC-Liquidator, and presently GSPI’s Manager, ProductionPlanning and Control: for providing assistance in finding contact details of former NSC customers, insights on the company’s management reporting, and industrial engineering.

Ms. Antoinette “Bong” G. Manzo, Financial Analyst, Finance and Accounting, for both NSC and GSPI: for providing me historical yearly NSC manufacturing database and insights on raw material importations.

Engr. Necitas “Nene” C. Vicente, formerly NSC’s Product Quality Engineer, CSM Quality Assurance, NSC then Team Leader, Human Resource, NSC-Liquidator and presently GSPI’s Asst Manager, Quality Assurance: for her indefatigable patience in answering my numerous questions and clarifications on NSC’s Quality Assurance methods,parameters monitoring, reporting, and other historical, yet nostalgic

273

Special Acknowledgement for former NSC personnel, continued

Engr. Jonathan Leo “Jonath” M. Roa, formerly NSC’s Statistical Staff, CSM Quality Assurance, NSC and presently GSPI’s Supervisor, CRM Quality Assurance: for searching various NSC’s QA monthly reports,

SPI’s Supervisor, Quality Assurance: for his clarifications on QA processes and profound insights on process, quality and supervision.

summarized yearly database

ly NSC’s Maintenance

oviding me linkage to

atus of ten years.

n to the dustbin or sold in bulk as waste paper for recycling.

production yield and customer complaints records from the QA mini-library, and old PC desktop electronic files.

Engr. Dante L. Ricablanca, formerly NSC’s Process Quality Engineer, Rolling Mills and presently G

Engr. Reynaldo “Rey” P. Maleriado, formerly NSC’s Mill-in-Charge/Supervisor, ETL3 Quality Assurance and presently GSPI’s Shift-in-Charge, Finishing Lines: for preparing afor ETL3 production parameters and several discussions on various ETL3 operational and quality aspects.

Engr. Henry “Boyax” G. Estipona, formerPlanner/Mill-in-Charge, ETL3 and presently GSPI’s Shift Supervisor, Utilities for providing additional data for ETL3 production parameters and several discussions on various ETL3 operational and quality aspects.

Engr. Cristine “Cris” Cabrera-Manuel, formerly NSC’s Researcher, Applied Research & Technical Department: for prhis father, Engr. Esteban V. Cabrera, Jr., and additional information regarding customer complaints.

Engr. Dionisio “Dion” A. Mabalot, Jr., formerly NSC’s Production Planner: for directing me where to find the old NSC production plans and monthly reports before these were declared garbage; and for encouraging me to finish my MBM course after a hi

Engr. Aurelio “Jun” Alamin, formerly NSC’s Staff Engineer, HSM Quality Assurance, and presently GSPI’s Shift-in-Charge, HRM Operations: for his persistent promise to summarize Hot Strip Mill 1 and 2monthly production parameters for 1994 to 1999, but never did, and will never will.

Ms. Ruth “Ma’am Ruthing” Mapayo, formerly NSC’s Department Secretary, HSM Quality Assurance, then Technical Secretary for NSC’s Resident Manager (Liquidator) and presently GSPI’s Secretary, Purchasing: for letting me forage old NSC historical files before they were to be throw

274

Special Acknowledgement for former NSC personnel, continued

s. Winonnah “Ma’am Winnie” Lacida, NSC’s Technical Secretary,

s, formerly NSC’s Electrical

erns.

ring

e, Finishing Lines of NSC and GSPI: for

Assistant, CSM

to the memory lane—personal recollections of “back then,

MOffice of the Executive Vice President, NSC and presently GSPI’s Secretary to the Managing Director/CEO: for letting me search some missing data on raw material exports/imports at the NSC Resident Manager’s file room.

Engr. Crescenciano “Cres” A. SadernaMaintenance Planner, PKL2, CSM Maintenance Planning and then GSPI’s Staff Engineer, Maintenance Planning Information, Cost and Control Division: for background information on PKL2 operation and maintenance conc

Engr. Tomas “Thom” J. Yniguez, formerly NSCs Electrical Engineer, also Maintenance Planner, 5STCM CSM Maintenance Planning; and GSPI’s Maintenance Planner, CSM: for discussions on the circumstances during the 5-STCM fire in 1998, as well as tidbits on maintenance plans for CSM.

Dr. Virgilio “Vargie” Y. Abellana, formerly Chief Researcher, Applied Research and Technology Development, NSC; and Consultant, Quality Assurance, GSPI: for accepting the Advisorship during the Thesis proposal phase; comments on the initial draft of this thesis; and offehis personal documents and research papers on product development for NSC.

Engrs. Alex L Macesar, Edmundo B. Badua, Sonny E. Orbe, and Naldy B. Sarroza, Shift-in-Chargtheir inputs on production scenarios, events regarding rehabilitation of NSC facilities, plus their understanding and patience due to my unscheduled leave of absences.

Mr. Rico “Ricsay” E. Manginsay, Draftsman/Staff Maintenance Planning, for both NSC and GSPI: for securing me copies of old monthly reports of CSM Maintenance Performance, and

To the nameless others, occupying various NSC positions at the most trying times of our lives, and those who wished to remain anonymous, for their trips during NSC . . .” stories, amusing quips and perplexing anecdotes; their personal comments on the GSPI rehabilitation phase and managerial styles, their quest for a labor union, and their respective lives in general after NSC and concerns for the future under GSPI.

275

APPENDIX II

LIST OF ABBREVIATIONS

Abbreviation

ACC—Apparent Steel Consumption per Capita ACFS—Apparent Consumption of Finished Steel ADB—Asian Development Bank AISI— American Iron and Steel Institute

elopment Bank of the Philippines

Five-Year Expansion Programs

ngs Limited

TFS— Tin Free Steel

AMC— Asset Management Corporation ASEAN—Association of Southeast Asian Nations CRC— Cold-rolled coil CRU— Composite Resources Unit CSM— Cold Strip Mill DBP—DevETL— Electrolytic Tinning Line HRC— Hot-rolled coil HSM— Hot Strip Mill ISIA— Iron and Steel Industry Act of 1991 IISI—International Iron and Steel Institute FYEP—GOCC—Government-Owned and Controlled Corporation GDP— Gross Domestic Product GSII—Global Steelworks Infrastructures, Incorporated GSHL— Global Steel Holdings Limited GSPI—Global Steelworks Philippines (AMC-SPV), Inc. GIHL—Global Infrastructure HoldiNDC— National Development Company NSCB— National Statistical Coordination Board NEDA— National Economic Development Authority NSO — National Statistics Office PISI— Philippine Iron and Steel Institute PNB—Philippine National Bank SF&FS —Semi-finished and finished steel SPV—Special Purpose Vehicle SEAISI—Southeast Asia Iron and Steel Institute SEC—Securities and Exchange Commission TP— Tinplate

276

CUR AE

Name: Arturo Brondial del Ayre, R.E.E.

Date of Birth: 14 November 1963

Educat

chnology

– 2008

ngineering, 1985 – 1988

ampus Journalism, 1988

4

Teachi

1995 – 2002

Profess

006 – to present

iquidator, 2001 - 2004

, 1995 – 2000

, 1991 – 1995

– 1991

RICULUM VIT

ion:

o Mindanao State University – Iligan Institute of Te

Master in Business Management, 2005

o Bicol University College of Engineering

Bachelor of Science in Electrical E Outstanding Student of the University for C

cademy o Philippine Military A

Academic Excellence Badge, 1982 - 198

ng Experience:

Lecturer, St. Peter’s College, Engineering Department,

ional Experience:

Shift-in-Charge, Finishing Lines, CRM, GSPI, 2

Analyst, Business Strategy, GSPI, 2004 – 2006

Team Leader, Technical Planning, NSC L

Electrical Maintenance Planner, CSM, NSC

Turn Supervisor/Shift-in-Charge, BAF, CDM, NSC

Engineering Management Trainee, NSC, 1989

277

Affiliations/Memberships:

Life Member, Institute of Integrated Electrical Engineers, (Phils) Inc.

am, GSPI, 2007 to present

teams, Finishing Lines, GSPI, 2005 to present

9000 Assessor, NSC Internal Quality Audit, Feb 1995 – Dec 1999.

t Program

rol Study on Aug 1991-Feb 1992.

6.

3.

ws. 1990 - 1997.

Force, NSC. 1993.

mmunity Leader, Geocities Tokyo, 1996-1999

iversity. 1987 - 88.

1986 – 88

Member, ISO9001:2000 Core Te

Adviser, TPM Jishu-Hozen

ISO

Adviser, D'Soakers and D’Reactors. Productivity Improvemenfor Operating Lines (PIPOL). NSC. 1990 - 1994.

Team Leader, "Stress Relievers." Statistical Process Cont

Hardness Capability of BAF, NSC. Pollution Control Officer, Cleaning Lines/BAF, NSC. 1994-199

Area Coordinator, National Steel Supervisors & Staff Union.1990 - 199

Area Coordinator, The NSC Ne

Member, Cold Mill Information Systems Task

Community Liaison / Co Editor-in-Chief, Geocities Tokyo E-zine, 1996 – present.

Collegiate Extra-curricular Activities:

Delegate, First IIEE National Quiz Show, Manila. Sept 18, 1987.

Editor-in-Chief, The Bicol Universitarian, Bicol Un Vice Chairman, University Student Council, Bicol University. 1987 – 88 Associate Editor, The Gearcast, BU College of Engineering.

278

hereby declare that this submission is my own work and, to the best of

my knoperson, nor m award of any other degree or diploma at MSU-IIT or any other educational instituti ript. Any contribution made to the research by others, with whom I have worked at MSU-IIT or e

of my own work, except to the extent that assistance from others in the project’s design ssion is acknowledged.

Arturo B. del Ayre, R.E.E.

CERTIFICATE OF AUTHENTIC AUTHORSHIP

I wledge, it contains no materials previously published or written by another

aterial which, to a substantial extent has been accepted for the

on, except where due acknowledgement is made in the manusc

lsewhere, is explicitly acknowledged in the manuscript.

I also declare that the intellectual content of this manuscript is the product

and conception or in style, presentation and linguistic expre