Cement History

1987 to 1997: Boom in a Liberal Environment

The People Power revolution of 1986 marked a return to democracy and the end of authoritarian rule. It also ushered in a new stage in the evolution of the Philippine cement industry – a period of quick expansion under a regime of trade liberalization.

Shortly before this juncture, the industry’s profitability was low despite a market situation where there were so few sellers that any action by any of them tended to affect prices and had a significant impact on competitors. It was also a period of cement shortage because of price controls imposed during the Marcos administration.

PHINMA’s Magdaleno Albarracin, a leading light in the Philippine cement industry, noted that price controls – instead of saving inefficient companies – became detrimental to their existence.

During the early years of President Corazon Aquino’s administration, the economy started to perk up as a result of democratic space and renewed investor confidence. The once moribund real estate sector suddenly came to life and construction projects mushroomed all over the country.

It was also during this period when the Philippine Cement Industry Authority – the government cartel formed during the Martial Law years – was abolished. In its place was formed a task force composed of the Development Bank of the Philippines and cement officials to draft an action program for the industry. Subsequently, the task force pushed for the industry’s deregulation through the lifting of price controls on cement products.

Price control dilemma

Despite these measures to address the supply lack, the industry did not respond as expected because the existence of price controls made the business of cement manufacture less attractive.

Subsequently, the government and the cement industry got into a chicken-and-egg situation. Accusing cement companies of overpricing, the government thought it was not wise to lift price controls. But cement makers believed there could not be enough supply because there was price control and there were no incentives to increase cement production.

The Department of Trade and Industry (DTI) set up price monitors around the country especially in Metro Manila. In response to government pressure, some cement companies put up retail outlets where people could buy limited number of cement bags. Without the limit, merchants could buy so much cement and turn around by selling in the black market.

Other cement companies would tell their dealers to allocate a certain number of cement bags at government control price. If the dealers were caught selling beyond, cement companies threatened to cut the cement supply to them.

On Feb. 4, 1989, cement prices were deregulated for the first time since 1970s. But deregulation coupled with the sudden rush to build in an atmosphere of relative freedom quickly pushed cement prices to high levels. This prompted the government to re-impose price controls on July 6 of the same year.

“ In economics, when you lift price controls, prices will go up. Producers will then be attracted to the high price so they will add capacity. And once there’s added capacity, prices will start going down but the government could not wait for that in 1989 because there were mounting complaints. So they immediately put back price control,” Albarracin explained.

From 1987 to 1990, cement demand picked up – increasing by about 22% annually. Owing to a more liberal environment, the number of construction projects suddenly soared to a point where an artificial glut in both high-rise residential and commercial office space took place.

It was only in 1991 when price controls were lifted again. According to Albarracin, demand for cement was probably not very much at the time. There were ups and downs. When the shortage was not very high, the government lifted price controls so the price did not go up much. At the same time, cement companies were encouraged to increase their capacity.

Period of expansion

In the early 1990s, an industry boom took place. The economy was picking up and so was real estate. With increased demand, cement companies planned expansion which was mainly funded by debt.

Albaraccin recalls that the PHINMA group had the most number of expansions: HI Cement (1991), Island Cement (1992), Bacnotan Cement (1993), Davao Cement (1994), and HI Cement (again in 1995).

During the same period, Republic Cement also expanded but decided to do so only after overcoming apprehensions over the future of the cement business. Earlier on, Republic was simply selling what it could produce.

Following the series of expansions at PHINMA and Republic Cement, other cement companies realized they had to increase their own capacity and followed suit. FR, Filipinas, Fortune and Alson’s expanded almost at the same time.

Also in 1995, the Gokongwei family bought the old Apo Cement and some new plants.

For three years up to 1996, the Philippine economy was experiencing robust growth. GNP was growing by about 6.8% while GDP by around 5.5%. The Philippines had the potential to grow at rates similar to its Southeast Asian neighbors.

In order to realize this potential, the Philippine government needed to invest heavily on infrastructure – a prospect that gave cement companies enough reason to be optimistic.

Then, tragedy struck. In 1997, excessive real estate speculation in Thailand triggered an acute monetary problem that bore down heavily on currencies, stock markets and other asset prices in Southeast Asia.

The Asian financial crisis – as it became known popularly – would not only arrest the Philippines’ growth momentum but also set back the expansion of major industries, including cement manufacturing. It was serious enough to, perhaps, alter permanently the Philippine cement environment. <back to top of first page>

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