Resilience

The quake that shook southern Mindanao last Sunday was the strongest of the series of quakes that rocked the island the past few months. This raises the possibility that even more powerful tremors could be forthcoming, given the activity along several faults in the area.

Unfortunately, available science does not allow us to predict this destructive natural phenomenon. Sitting along what is called the Pacific Rim of Fire, we are heirs to nearly continuous volcanic and seismic activity.

Since we cannot prevent earthquakes, our only recourse is to build resilience to minimize the hazards they pose to public safety. A key element in building resilience is to enforce building codes of the highest standards.

Our building codes require that edifices should be able to withstand magnitude 9 earthquakes. Last Sunday’s magnitude 6.9 quake caused extensive damage in the communities closest to the epicenter in Davao del Sur. That was a strong quake, to be sure. Fortunately, key infrastructure such as bridges withstood the tremor. 

A collapsing wall killed a child, the first casualty reported from the event. The rest of the casualties were due to a low-rise commercial building that completely collapsed. One municipal hall was completely shattered. Although no one was seriously injured, the structure must now be condemned.

From the pictures of these structural failures, it is clear that the culprit is either insufficient or substandard steel supports installed in the construction of these buildings. Tragedies such as the once we witnessed once more last Sunday could have been averted if building inspectors were not lax or if contractors were less corrupt.

There are historical reasons why structures in Mindanao might seem more vulnerable. For decades, steel products were shipped from plants in Luzon and were more expensive. This handicap was cured with the recent construction of modern steel plants in Davao and Cagayan de Oro – both by country’s largest manufacturer of steel bars, SteelAsia. Now the price of steel in Mindanao is at par with the rest of the country and the quality is world-class.

When the price of steel bars in Mindanao was higher than elsewhere and when supply was short, demand for this construction input was met by the smuggling of substandard products. Today, the Bureau of Customs and the Department of Trade exercise greater vigilance to prevent the proliferation of substandard products.

The Philippine Iron and Steel Institute (PISI), the industry association of local steel manufacturers, should also be credited for investing in the equipment and technical expertise to test products available in the open market. It is not easy to spot inferior products with the naked eye.

Despite the gains in consumer protection, the scourge of substandard steel products continues to haunt public safety. The threat, this time, comes from antiquated plants imported from China that supply that market with substandard products.

These antiquated plants use induction furnaces. This involves old technology that use power inefficiently and heavily pollute the environment. After the collapse of steel demand in China after the Beijing Olympics, and as China’s cities succumbed to deadly smog, induction furnaces were outlawed. This is the reason why the antiquated plants were disposed of very cheaply and sold in several Southeast Asian economies, ours included.

From exporting substandard steel to neighboring economies, China’s rouge manufacturers shifted to selling old factories at nearly scrap value. Local businessmen who did not have the capital, the expertise or the inclination for modern manufacturing methods bought these outlawed plants. They now account for a growing share of domestic steel production and nearly all of their factories were built during the last few years, after China banned their use. 

There is no lack of apologists for the use of these dirty induction furnaces. But none of them adequately explain why these plants were outlawed in China to begin with.

The only reason why these pirate plants manage to do business even if they produce deficient products is that our recent economic growth outpaced our steel manufacturing capacity. There are several product lines – such as beams, sheet piles, wire rods, ordinary nails and angles – where we have no manufacturing capacity at all and import all our needs. SteelAsia is now building new mills in Lemery in Batangas, Candelaria in Quezon and Concepcion in Tarlac to make these products.

There is a large gap between the first generation of steel mills built during the import substitution phase in the 1950s and the modern mills built over the past few years. In the interim, there was currency and political volatility as well as inhospitable policies that discouraged long term investments in our industry.

As late as 2007, the Philippines and Vietnam had the same per capital consumption of steel at 94 kilograms. Today, Vietnam’s per capita consumption of steel has risen to 227 kilograms while ours remains basically the same. China’s per capital steel consumption is 523 kilograms while South Korea’s is at a whopping 1,106 kilograms.

As our economy becomes more urban, demand for steel products should rise sharply. We are nowhere near catching Vietnam in the short term. But we should be able to match them in the medium term as modern plants are being built.

 Also, as our economy rapidly industrializes, there will be sharply rising demand for downstream steel products. In a more supportive environment, more investments should be drawn to help modernize our steel industry.

No nation sustainably achieves industrial status without a competitive steel industry. Then, too, no society achieves resilience against natural disasters without the ability to supply its market with superior steel products.