Cement industry braces for tougher times

There will be more cement plants closing down this year and local cement manufacturers have said that demand would continue to decline as the government suspends its pump-priming activities to contain its projected P225-billion budget deficit.

During the first two months of the year, Cemex Philippines Inc. said domestic demand had already gone down by four percent and indications are it will go down further as the construction sector grinds to a halt.

Cemex Philippines chief executive officer Francisco Cue told reporters that as long as the budget deficit remains a problem, construction is not likely to pick up enough to enable the cement industry to recover.

Thus, Cue said the cement industry is in for harder times this year although there could be some relief as investors become more confident of the business climate under the Arroyo administration.

According to Cue, the Cemex group had already closed down several kilns. Rizal Cement has already shut down its kilns while Solid Cement has closed down two of its three kilns. Apo Cement, meanwhile, is operating only one of its three kilns.

With these closures, Cue said Cemex’s annual production is now down to 2.3 million tons or less than half of its total capacity of six million tons of cement. At present, he said the Cemex group accounts for 20 percent of the domestic market.

Depending on its export markets, he said the group’s production could go up to as high as 3.3 million tons if it could export one million tons this year.

"We’ve already closed down as many as we can so we won’t be closing down any more kilns but we expect more closures in the industry as a whole," Cue said, adding "we really do not see any growth in demand."

Cue explained that the cement industry is dependent on the state of the national budget because public infrastructure accounts for the bulk of construction activities. "The fiscal deficit is critical to the industry," he said.

To make up for the slack, Cue said Cemex will continue to export its cement this year, specifically to Taiwan where it has a long-term partnership with a Taiwanese cement trading company.

Cue said Cemex had already increased its exports to Taiwan by 200 percent. "We will export whatever we can sell," he said.

Taiwanese cement manufacturers have been complaining against the surge in Cemex’s exports that reportedly caused prices to plunge by as much as 20 percent in what has been called a dumping war.

Taiwan itself has been exporting aggressively into the Philippines led by Taiwan Cement Corp., the company owned by Taiwanese banking tycoon Jeffrey Koo. As Taiwanese cement companies started to dislodge local producers from the cement market, however, Philippine cement manufacturers retaliated by exporting cement to Taiwan.

Since then, prices have dropped by 20 percent in Taiwan due to the export surge.