Philippine Cement Industry: Worried but Fighting Hard

(Featured at Tambuli:
Monthly Magazine of the Federation of Phil. Industries
Vol. 1 Issue #11 – December 31, 2004)

Philippine cement manufacturers continue to put up a hard fight to remain viable in a business environment that never seems to run out of surprises. Demand for cement remains weak as infrastructure growth in the last three years left much to be desired. Amid the prolonged slump, members of the Cement Manufacturing Association of the Philippines (CeMAP) had been forced to continue operating at an undesirable capacity utilization rate of 55-65%.

Significant increases in costs of inputs rendered the business environment even more challenging. An industry that relies heavily on power and fuel, the recent increases in power and fuel prices and the looming prospect of even more increases had posed a challenge to business prospects. World coal shortages had led to higher prices. Shipping and freight costs have also shot up to historic levels, sometimes ending up more expensive than some raw material being transported.

Against these adverse realities, however, the local cement industry has achieved unprecedented strides in building competitiveness-boosting foundations.

EXCELLENCE, DESPITE THE ODDS

Philippine cement companies have started making waves in the ASEAN region as local plants lead the way in obtaining the much coveted international standard certifications.

Cement plants in the Philippines hold the distinction in the ASEAN region of being ahead in the standards department. All major cement plants are holders of three different sets of standard certifications, all of which require incessant upgrades while others are gunning for the comprehensive, quintessential standard certification from the ISO referred to as ‘Integrated Management Systems’.

Certification International Philippines (CIP) Managing Director Renato Navarette said achieving the three important certifications through an Integrated Management System means a more comprehensive control over the way the cement companies work to achieve its business performance objectives.

Significant capital and manpower resources are invested by companies to retool systems and practices, that result in a ‘win-win’ situation because all the effort creates a better world for everyone concerned.

“While local cement companies are increasingly becoming successful in their operations, it is not at the expense of the stakeholders like the communities and employees as they are guided by international systems on quality, environment and health and safety management,” Navaratte said.

Integrated Management Systems consolidates three very difficult aspects of manufacturing excellence, namely, quality (ISO 9001), environment management (ISO 140001), and health and safety (OHSAS 18001). The practice is not only more cost-effective, it also creates a total corporate culture of excellence and corporate responsibility.

So far, Union Cement in Norzagaray and Iligan Cement have already achieved the Integrated Management certification. Fortune Cement holds all three ISO certifications while gunning for new opportunities. Solid Cement and Apo Cement have completed all three certifications some time ago and continue making considerable improvements beyond those required for certification purposes.

COMPETITION DRIVES INNOVATION

Competition and the resulting introduction of more product variety is changing the way Filipinos use cement. For the last year or so, stiff competition in a limited and stagnant local market has opened the doors to innovation.

In the past, people had to adjust everything they did to the properties and features of cement –they had to use the same cement product whether they were plastering walls, building a high rise, or simply filling out hollow blocks. Now cement companies have customized their product to create more value for money, user-friendliness and better results.

The Republic Cement Group of Companies, an associate of Lafarge, covers an extensive product range. In the OPC market, it has Republic, Dragon, Continental, Fortune and Mindanao Portland, as well as Republic Type 2 and Type 5 cements. For Pozzolan cement, the group manufactures the Republic and Mindanao Portland Pozzolan brands. Recently, the group also launched Phoenix, a Portland and fly-ash cement, as well as Portland Plus, a Portland and slag cement, which have already been well received by local contractors.

Republic Cement Group’s products were used in the North Luzon Expressway and LRT2 Line Depot projects, as well as in many Ayala land developments and SM commercial centers throughout the country.

Union Cement’s products include Union Portland, Premium Portland, and Union Type-II. Union’s Type II cement was used in San Roque Dam and is also exported to Hawaii and Texas, USA. One of its products, Union 4X is a high performance cement used in advanced countries for massive infrastructures. Their Excel is gaining high popularity in the Visayas and Mindanao area due to its improved workability, high early strength and higher yield. Union’s Wallright, intended for plastering and finishing, not only provides cost savings, it also provides better workability. Aside from Union’s Portland products, they also produce pozzolan.

CEMEX’s aggressive positioning includes two new specialized products: the CEMEX Palitada King and CEMEX Marine. It intends to bring in a few more products in the coming months. Apo Cement, Island Cement, and CEMEX White are among CEMEX brand products. Actual demonstration and usage of CEMEX Palitada King and CEMEX Marine were conducted with contractors, foremen and masons to introduce and explain the features and advantages of the products.

CEMEX Marine, which negates the effects of sulphate attack (sulphates are found in the soil and sea water), has been specified in port projects, coastal roads, as well as households.

CEMEX Palitada King customers, on the other hand, have testified that the product offers better adhesion and spread, giving masons better workability. CEMEX Palitada King has been specified for masonry projects of major high-rise developers.

But despite things looking like ‘business as usual’ as far as their uncompromising pursuit for quality excellence, environmental commitment and social responsibility are concerned, cement makers cannot afford to let down their guard.

In the recently held 28th council meeting of the ASEAN Federation of Cement Manufacturers (AFCM) held in Manila on November 23-26, many worrisome prospects were discussed.

Apart from continuing oversupply in the region amid generally slack demand, regional worries have also focused on prospects beyond 2005, or the year when the Chinese economy is expected to experience decelerating growth. China now consumes half the world’s supply of cement. Faced with weakening demand amid a present production capacity of over 1.0 billion metric tons, China’s release of say only 1% of its production in the regional market is estimated to translate to 10 million metric tons of unwanted supply in the region. That volume is certain to trigger extreme price volatility which will most adversely affect the very survival of smaller cement producers.

Over the past 3-5 years, there had been noted attempts to penetrate each others markets by cement manufacturers desperate to dispose of excess capacities. This has forced everyone to put up tariff and non-tariff barriers to protect their own domestic industries against injurious imports. Needless to say, countries which have non-existent or negligible tariff protection will be most vulnerable to dumping.

The Federation of Philippine Industries have noted that the operating conditions for local cement manufacturers have gotten even tougher than the time when safeguard measures had been imposed.

The cost of fuel and electricity continue to rise and overcapacity continues to be a problem despite some improvements.

The least the government can do during these trying times, the FPI said, is to continue with the safeguard measures.

The Department of Trade and Industry, acting on petitions from local cement manufacturers, imposed a safeguard duty of P20.60 per 40-kilogram bag of imported cement starting in June 2003. The duty was reduced to P15.60 last March on account of rising prices in the local market.

In a ruling issued last July, the Supreme Court overturned an earlier decision of the Court of Appeals which upheld the safeguard duty. The DTI has filed a motion for the Supreme Court to reconsider its decision.

In arguing for an extension of safeguards measures, CeMAP president Felix Enrico R. Alfiler said: “While rising costs have not derailed (industry efforts to be more efficient), the results may take longer to realize.”

Cement manufacturers have been taking advantage of the reprieve granted by safeguards measures to improve operations and prepare to compete with imports once the safeguards lapse. Among the measures that local cement firms have adopted are debt restructuring; extensive research on the use of alternative fuels to reduce the dependence on costly electricity and imported coal; increased management and operational efficiencies, improved management techniques and more intensive product research and development.

However, the recent upsurge in cost of coal, diesel fuel and electricity, among others, have made it more difficult for members to make the needed adjustments to be more competitive with low-priced imports. Continuing excess supply in Asia also makes a low-tariff country like the Philippines vulnerable to dumping.

Also, Alfiler said the safeguard tariffs should be retained because there was still an excess of supply in Asia, which poses a threat of dumping to a low-tariff country such as the Philippines vulnerable to dumping.

As of this writing, the Tariff Commission has given notice that it will hear the petition of the cement industry for an extension of safeguards measures on Dec. 17.

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