By Bernie Cahiles-Magkilat
The joint venture between China’s HBIS Group Co. Ltd. and Huili Investment Fund Management Co. Ltd. and Filipino firm SteelAsia Manufacturing Corp. for the $4.4 billion backward steel integration project will offset at least $1 billion in annual importation of steel for the Filipino company.
Benjamin O. Yao, chairman and CEO of the Philippines’ largest producer of reinforcing steel (rebars), said they are importing annually at least 2 million metric tons of billets worth at least $1 billion. In 2018, the cost of importation was lower at $800 million as prices of steel have gone down.
The company’s importation of billets, the raw materials for rebar production, will even increase to 3-4 million tons in three years as the company aims to double its capacity to 8 MMT overtime.
SteelAsia is expanding its rebars production and is going into downstream steel products such as wire rods, reinforcing mesh, high beams, among others.
“Our importation will increase because we are going to add 3-4 MMT capacity in 3 years,” he said.
But Yao said that not all billets can be sourced from the HBIS plant in Phividec Industrial Estate in Misamis Oriental because they also have a scrap metal recycling project for billet production.
Perhaps, he said, they can source 2 million tons of billets once the project of HBIS goes on stream.
SteelAsia has lined up an ambitious P100 billion in expansion program. Of this figure P66 billion worth of investments have already been registered with the Board of investments.
Its BOI-registered projects include 2 wire rods, 2 sections and 2 rebars.
In the pipeline are small downstream projects such as reinforcing mesh, cut and bend, among others.
Its expansion in the next five years to quadruple its capacity to 8 MMT would help the country achieve 70 percent steel self-sufficiency from the current 40 percent.
On the partnership with HBIS, Yao called it a “win-win” solution as they need the flat products for their downstream projects and accelerate its mission to have a fully integrated steel manufacturing operation in the country.
“We are in the long products but we don’t have high beam and blooms and wire rods but with HBIS, which will produce flat products, we are addressing that,” he said.
The HBIS backward steel integration will start from iron ore and into the production of upstream products called flat steel such as billets, slabs, and blooms. Billets are used primarily in the production of rebars.
“So that is the beauty, we don’t have to rely totally from abroad as flat products could be sourced from locally produced billets,” he reiterated.
“It is an offtake. HBIS probably invested in the Philippines because there is a market here from midstream and upstream and semi-finished products,” he added.
“Hopefully, in 6-7 years from now we will have everything,” he said referring to complete full cycle integrated steel manufacturing operation in the country.
He lamented that the Philippines has been left behind in the region in steel making but he said that the HBIS entry is a “good start” and they are excited to be part of this undertaking.
Yao, who has been in steel manufacturing for the past 50 years, said the equity structure of the project with HBIS has yet to be discussed following the signing of the memorandum of understanding.
“Yes there will be equity from us, we will become an equity partner but it is still too early to talk about the equity structure because the MOU was just signed and it happened so fast but that is the direction,” said Yao during a media roundtable.
“The investment is shared with local partner, that is the direction,” Yao reiterated.
Rafael Hidalgo, SteelAsia vice-president for business development, also said that perhaps the details of the equity structure of the company will have to be ironed out after the Christmas holiday season as everybody is now on a holiday mode already.
There has been no discussion yet as to how the huge investment can be financed, but Hidalgo said it is most likely a combination of local and foreign financing as customary.
“The equity structure is yet to be discussed but we will have a share. The number mentioned is the project cost, not the Chinese investment. Of course, we will have a participation but the numbers have yet to be discussed,” said Hidalgo adding they will be participating in the project as joint venture partner, not as technical support partner because their expertise is in the long products, not the flat products.
But Yao said that management of the project will be in the hands of the Chinese since they are not an expert in the production of flat products and they know their limitation, but he stressed that they are very complementary.