TID Updates

October 10, 2013

2

Electric Furnace

Steel MakingScrap

Bars(Deformed/Plain)

Shapes/Section

Construction

Manufacturing

MachineriesIngotsBillets

Rolling

Construction

Fabrication

LONG PRODUCTS

Imported Wire Rods

Nails

Wires

Fasteners

HR Plates

Hot Rolled Coils

Pipes/Tubes

Construction/Fabrication

Stockist/Hardware

Imported Slabs Hot Rolling

Shipbuilding

Pipes

Imported HotRolled ProdFLAT PRODUCTS

ImportedHRC

Cold Rolling

Cold RolledCoils

Tin MillBlackplate

ImportedCRC/TMBP

Fabrication

GalvanizingGI/PPGISheets

Construction/Fabrication

Appliance

Stockist/Hardware

Tinning Line

ImportedTinplate

Can MakingFood Cans

Containers

Imported Billets

Industry Profile/Situationer

PHL Steel

In Million Metric

Tons*

2010 2011 2012

LOCAL PRODUCTION 2.5 2.9 3.2

IMPORTS 2.1 2.9 3.4

EXPORTS 0.1 - -

APPARENT STEEL CONSUMPTION

Adjusted for yield and double

counting

4.1 5.2 6.0

*In general, tonnage is 60% Longs and 40% Flats

50% jump in

TWO YEARS

0

50

100

150

200

250

300

350

400

450

2000 2006 2007 2008 2009 2010 2011

Malaysia

Thailand

Indonesia

Philippines

Vietnam

283

215

110

54

45

Source: World Steel

Intensity of Steel Use

Stages of Steel Use Per Capita

1. Very low level before economic take-off

2. Rapid rise

3. Leveling off

4. Decline

5. StabilizationPPHILPHIL IS AT TAKE

OFF STAGE !

Steel Industry Multiplier

Every new investment of P100 million leads to ...

• a higher domestic output of Php 260 million

• an additional HH income of Php 24 million

• And additional 117 new direct regular jobs

* Based on raw data from (a) 2009 Annual Survey of Philippine Business and Industry; and (b) Center for Research & Communication (UA&P) estimates of updated Input-Output tables for 2008

STRENGTHSAvailability of technical experts in the industry

Trainable workforce

Usability of indigenous matls

WEAKNESSESFragmented supply chain

Plenty of small capacity factories

Weak enforcement of applicable laws

High power and logistics/transport costs

General perception as an unattractive investment area

OPPORTUNITIESExcellent Phil econ growth prospects and high projected steel demand

Unserved actual demand e.g. infra, shipbuilding, tinplates, etc

Excess/idle flat steel capacities for reactivation/rehab

Govt has plenty of “fiscal space” to jumpstart vital projects

THREATSExtremely high level of import dependence

Excess capacity in China-possibledumping in foreign markets including the Phil

Unabated smuggling

FTAs and AEC (2015) market integration , especially certain disadvantageous provisions

•By 2030, the Philippine Iron & Steel industry sees itself as a

globally competitive provider of quality steel products for

domestic users

•ASC of 20 Million MT by 2030, translating to 130 kg per capita

(from 50 kg per capita in 2012)

•70% Local Production share of Finished Goods by 2030 (from

50% in 2012)

•Assured supply of competitively-priced input materials starting

2015

Vision

Goals

Targets

PHILIPPINES VS. SELECTED ASEAN COUNTRIES

* Both iron-making and steel-making. Steel-making alone (e.g. billets as in the Philippine case) is not consideredfull integration.

** Ratio of total ISM capacity vs 2012 ASC.

*** Half (3 MillionMT) is being supplied by Sahaviriya-UK, a foreign subsidiary of Sahaviriya-Thailand.

ANNUAL REQUIREMENTS FULLY INTEGRATED*

DEGREE OF SELF-SUFFICIENCY**

ASC (Million MT) ISM CAPACITY (Million MT)

2010 2011 2012 EXISTINGUNDER CONST’N

TOTAL

Malaysia 8.3 8.2 8.9 4.4 0.7 5.1 57%Thailand 14.1 14.6 16.4 6.0*** - 6.0 37%Indonesia 9.0 11.0 12.5 2.8 3.0 5.8 46%Vietnam 10.8 9.7 11.0 1.8 7.3 9.1 83%Philippines 4.0 5.1 6.0 NIL* NIL NIL NIL

• Revive Presidential Iron and Steel Committee (PISC) as topmost centralplanning body.

• Mobilize National Development Company (NDC) to jumpstart vitalprojects

• Enforce the “buy local” policy for all government projects.

• Amend RA7103 (issued in 1991) to present situation and to legallyenable policy decisions of PISC

• Commission comprehensive feasibility studies on the ISMproject, preferably with utilization of indigenous materials..

MAJOR ACTION STEPS

SHORT-TERM (2014-2018): Strengthen existing operations, plug supply-chain gaps, enhance overall competitiveness, lay groundwork for future strategic plans.

• Support the “key enablers”, i.e. generalaction items common with other sectors(infrastructure, power, transport, smuggling, etc.).

• Consider acquiring (perhaps thru NDC) theflat steel facilities of GSPI (in Iligan) and SCP(in Batangas) for rehabilitation/upgrading.

• Put up heavy-gauge galvanizing line toaddress requirements of infra projects .

MEDIUM-TERM (2019-2023): Assure reliable supply of competitively-pricedinput materials to satisfy rising demand, develop symbiotic relationshipswith mining sector, move up the technical ladder.

MAJOR ACTION STEPS

• Start operations 2020 of 1st module (e.g. 1-2 Million MT PA); begin construction of 2nd

module (ASC could be at 13 Million MT already)

• Review/revise investment incentives to also encourage mergers/consolidations for economies of scale.

• Tighten linkages between steel industry and mining sector, particularly on iron ore/sands and coal.

• Explore opportunities within the ASEAN as importer of input materials and/or exporter of finished products.

• Put up new/additional (economic size) EAFs consistent with ISM project/s.

• Intensify drive for technology upgrading – get technical experts for OJT purposes, enhanceschools/universities curriculum .

• Install /operate 3rd and 4th modules of ISM project as ASC projected at 18 Million MT (on to 20 Million MT for 2030).

• Promote R&D work on high-value steel products and/or steel-using end-products for the domestic and/or export markets.

PHILIPPINES IS AT THRESHOLD OF AN ECONOMIC TAKE OFF

ESSENTIAL INDUSTRIES MUST BE REVITALIZED

STEEL INDUSTRY NEEDS URGENT ATTENTION TO COPE WITH RAPIDLY RISING DEMAND

LET’S MOVE!