PHL cement makers eye bonanza from upcoming PPP projects

The cement industry grew a staggering 18 percent last year to 18.5 million metric tons, the kind of growth unseen in 15 years, but something that will likely not be duplicated this time around largely because of what economists call a base effect—or what goes up must come down.

 

Compared with last year, the industry expects more of a “modest growth this year,” according to key players—who also note, however, that what is happening is just the tip of the iceberg as they look forward to a bonanza in the coming years when big-ticket infrastructure developments from the public-private partnership initiative start rolling out.

 

Ernesto Ordoñez, Cement Manufacturers' Association of the Philippines (CeMAP) president, said the construction of high-rises initiated by the private sector and government's record spending on roads, seaports and airports are a valuable support to the industry ahead of the PPP projects.

 

“We expect to grow volumes at a more modest pace of more than 5 percent for this year, meaning we're sustaining the volumes that we have,” he told GMA News Online. Ordoñez said it is unlikely that the industry will match last year's 18-percent growth, a 15-year high, due to base effects. 

 

Cement volumes expanded at a “modest” 3 percent in the first quarter year-on-year, he said. The industry's first quarter results fell short of the 10-percent 2013 industry growth goal CeMAP disclosed to Oxford Business Group earlier this year. 

 

Expanding capacities

 

Still, cement companies were painting a rosy outlook when it comes to business. “Things have picked up in the second quarter, as some public works that were stopped in the run-up to elections are being continued,” Ordoñez said. 

 

Holcim Philippines Inc., one of the largest cement companies, is even planning to expand its output with an eye to better days. 

 

“We are optimistic that cement demand will hold in the medium-term, and we are in fact looking to increase capacity to meet the needs of the market,” said Holcim CEO Eduardo Sahagun.

 

The industry, Sahagun said, operated “near capacity levels last year” even if big-ticket infrastructure projects under the government's flagship public-private partnership (PPP) program have not actually rolled out. 

 

“Overall cement consumption in the Philippines is still much lower than that of our regional counterparts, and there is so much catching up to do given the huge backlog in infrastructure and housing,” the Holcim official noted. 

 

The Philippine arm of French cement marker Lafarge Republic Inc. is also raising capacity of its manufacturing plants and its subsidiaries. It reopened plants at its Danao Facility in Cebu province last month. 

 

According to Department of Budget and Management data, government allotted P268 billion this year to bolster a transport network that has been criticized as one of the worst in Asia.  

 

There is also the real estate sector, whose players are neck-and-neck catering to the growing demand for office space as the business process outsourcing industry continues to expand. On top of that, developers must meet the 646,128 housing units needed this year alone, according to property consultant CBRE Philippines. 

 

PPP underpins the future

 

Construction, which contributed a large chunk to the country's surprising 7.8 percent growth in the first quarter, may have provided a stable springboard for the cement industry growth. But the sector is just bracing itself for a steeper climb once the government's PPPs break ground.  

 

“We are hopeful that more big ticket infrastructure would start coming in. A lot of players are preparing for that,” CeMAP's Ordoñez said.

 

Sahagun, on the other hand, is also an optimist when it comes to the Aquino administration.

 

“The current administration's very disciplined approach to fiscal management and commitment to raise infrastructure give us additional reason to be hopeful,” he said. 

 

Oversupply from China, Vietnam

 

Right now there is an oversupply of the commodity in China and Vietnam, some of which are landing on Philippine shores.

 

“Local manufacturers have an advantage as long as they continue to meet the demands of the market,” said Sahagun. 

 

Noting the importance of strong relationship-building with contractors, he said, “We are confident that customers will not readily shift to a supplier they do not know, and whom they cannot run after once the product has been delivered.”

 

Ordoñez viewed the threat as a matter of quality control which will keep Philippine products ahead of imported cement. 

 

“The excess supply in other countries, like Vietnam and China, could be substandard. They'll use the good ones there and pour in excesses here. As long as there is commitment to produce and use quality cement, substandard materials have no place here,” he noted. — VS/BM, GMA News