The Grey Chronicles

2008.September.7

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 allegedly due to Hottick mismanagement.

Effects of External Factors to NSC’s Flat Carbon Steel Production

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 demand increase over time, but a situation of lack of supply capacity in ASEAN continued until 2005.

World/ASEAN Steel Supply (Production). While the World crude production oscillated in the ±10% year-on-year 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-year by 1999 from a peak of 56.25% year-on-year six years earlier. The downhill trend for NSC production began in 1994, when was privatized during the Ramos administration, i.e., before the Asian Financial Crises in 1997-98. The data shows that there is a strong positive correlation between NSC crude (hot-rolled and cold-rolled coils) production and the Philippine crude production, while a negative correlation to the World crude production, World and ASEAN hot-rolled production. A weak negative correlation is shown for ASEAN 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 privatization 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 strong correlation to the ASEAN ACC, while there is a weak correlation with the apparent consumption of finished steel (ACFS) for both the Philippines and ASEAN; and a moderate correlation with the Philippines’ apparent steel consumption per capita (ACC).

Raw Steel Imports. The hot-rolled coils imported by NSC remarkably decreased in 1995 when NSC brought Hot Strip Mill No. 2 into commercial operations, 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 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 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, and a weak correlation to the Philippine and ASEAN Semi-Finished and Finished (SF&F) steel imports.

Steel Prices. NSC flat carbon steel production shows a strong correlation to the following monthly steel prices: Global, Flats, Asia, and North American Steel Price indices. 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 show higher correlation to Asia Flats and Global Steel price indices.

Effects of Internal Factors to NSC’s Flat Carbon Steel Production

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. Data shows that monthly NSC production is moderately correlated to monthly Production Rate.

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, actual Material Yield tended to go above the standard set for each month. Data shows that there is a moderate correlation between monthly NSC production and monthly Material Yield.

1995-1999 NSC Prime Yield. The actual Prime Yield for each month, from January 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 very weakly correlated to the monthly Prime Yield.

1995-1999 NSC Product Quality. Historically, prior to its privatization, NSC’s customer complaints amounted to about 1.3% of the total Finished Goods sold. This 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 April 1995. There was a high acceptance rate for NSC products at customer’s end even when 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 moderate correlation between the monthly NSC production versus quality, or percent Customer Acceptance Rate (%CAR).


Notes:

Koda, S., Kaihara, T. and Dobashi M. (1995), “Steel Demand Projection in Asia,” Tokyo: Kawasaki Steel, 03 August 1995. pp. 1-5. back to text

Barnett, Donald F, & Robert W. Crandall (2002), Industry Studies Steel: Decline and Renewal. USA: M.E. Sharpe, 2002. Duetsch, Larry L. (ed), p. 129. back to text

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