For the Long Term

 

Rebar Consumption Outlook

An upward trend in rebar consumption since 2007 has been observed in the Philippines, attributable to the positive economic growth and development.  Internationally, rebar producers have repeatedly referred to the Philippines as “a bright spot” in the world, alluding to the rest of the world’s mediocre to miserable economic growth and rebar demand experienced for now nearly a decade.  While analysts, including those from Goldman Sachs1 and HSBC2 see the continued rise of the Philippines into one of the top world economies, in contrast many continue to have a pessimistic outlook for the steel industries of the developed world.

 

 

The sustained economic growth has given the construction industry momentum of its own.  The major developers have taken on long-term pipelines of projects.  It is widely known by the industry that the momentum of building is fuelled by the needs of the country, rather than speculative positions on property.  This is a resilient type of growth that renders irrelevant political and even global or domestic economic blips. 

The empirical evidence of economic development debunks the off-the-cuff boom-bust cycle theories and construction bubble doomsday scenarios.    

There is no secret to the Philippines’ growth story: 

First, the country has lagged behind in development for the past thirty years

This has created backlogs particularly in infrastructure, utilities, and housing all of which are being addressed with construction activities and plans that will roll out well into the next decade.  The shortage is addressed today with urgency because it creates social issues and is a dampener on economic and industry competitiveness and development. Infrastructure spending is targeted to account for 5% of the country GDP.  The major part of this spending is for the provincial developments of the Department of Public Works and Highways3, but the big ticket projects involve the private sector and are part of the government’s Public-Private Partnership (PPP) Program4. In the utilities sector, according to a Department of Energy5 report, the energy sector which generates 17,000 MW is looking at an additional demand of 13,000 MW by 2030.  Also, the housing sector puts the accumulated housing backlog at 5.5 million units as of 2015.  While housing development capability continues to grow, the country is still at a point where units produced are still outstripped by new needs.  These ongoing developments will give birth to more construction, including those for new and expanded industries and services.

Second, the Philippines has a large and fast growing population

The country’s 100 million over population is behind the consumer driven economy. Construction of infrastructure, industries, logistics, housing, schools and other necessary institutions and services is needed to supply the population.  The population is also growing fast at 1.8%, one of the highest in world for significant sized countries. This means nearly 2 million new Filipinos every year, and continuously growing needs that new construction projects will provide for.

Third, rising incomes including dollar inflows provide funds needed for construction

Aside from surging private sector spending notably from the Aboitiz, Ayala, DMCI, Megaworld, MPIC, San Miguel, SM groups among many others, crisis resilient dollar inflows from overseas Filipino workers are at USD 27 billion annually and continuing its more than a decade long upward trend.  The Philippines is also the leading global player in the business process outsourcing industry (BPO) with a CAGR of 15% over the past 5 years and accounting for USD 18 billion in dollar inflows last year.  The country’s high growth is in spite of the under-spending of the Philippine government that has created budget surpluses- much of which is earmarked for infrastructure development.  While the political debate continues on what exactly is the contribution of government to the positive economic performance, there is no doubt as to the performance itself of the country’s economy, now dubbed as the “star of the region”.

To put the backlog and the pent-up demand it has created into perspective, it is no longer about the people, situations and events that created yesterday’s mediocre economic performance, rather today it is an opportunity to invest, generate business livelihood and jobs to create country prosperity and start on the road to redeeming the country of its social ills.

SteelAsia Manufacturing Corporation

Corporate Office: 2nd Floor, B2, Bonifacio High Street, Taguig City Metro Manila, Philippines 1634

Tel: (632) 856.6888 | Direct-Sales: (632) 856.2222 | 856.3333