Philippine cement sector pressures
The Philippine cement sector has been hitting the headlines over recent weeks following an ongoing spat among importers and producers on whether imports should be inspected pre-shipment or on arrival in the country. Meanwhile, market volatility continues as government infrastructure projects failed to progress as quickly as expected in 1H17 and competition is heightened due to growth in import volumes.
To combat the importation of sub-standard cement, Philippine Cement Importers Association (PCIA) earlier this week backed government plans for the preshipment testing of imported volumes. The PCIA has pushed for preshipment inspection not only because it is consistent with international standards but because “it prevents poor quality products from reaching the country.” The government has also suggested that preshipment testing was proposed “to solve operational delays” after importers complained that the process of testing upon arrival took days. Thus, the preshipment testing was proposed to solve the operational delays while still ensuring that the products that will come in are only those that pass the required standards test.
However, senior executives from the local production base have opposed the proposed changes in government import regulations, with some producers instead favouring testing of imports upon arrival in the country. Paul Ang, CEO of Eagle Cement, in a letter has called on the government to draw up revised rules and guidelines on the issue for the cement industry. He has also requested that the Department of Trade and Industry (DTI) and other agencies combat the 'technical' smuggling of cement. Separately, Taiheiyo Cement Philippines President and CEO, Satoshi Asabi; Mabuhay Filcement CEO, Enrison Benedicto; incoming Republic Cement President, Nabil Francis, and Cemex Philippines President, Ignacio Mijares, also argued against preshipment inspection in favour of testing imports upon arrival.
The DTI has said it remains firm in requiring cement importers to secure licences and clearance for their imports to ensure product quality. In a statement, the government department said it intends to support the development of the construction industry as a whole, from the supply side to the consumer side. Trade Secretary, Ramon Lopez, reiterated the issuance of Department Administrative Order 17-02, as amended by DAO 17-05:2017, would evenly protect consumers from sub-standard cement while supporting the cement industry. “Whether addressing the quality of cement or steel products, the government needs to ensure the healthy state of the construction industry as our partner in the Build Build Build program to create the golden age of infrastructure,” Mr Lopez said.
Market volatility continues
Meanwhile, higher imports have also contributed to continued domestic pressures, together with the delays to major infrastructure projects. In its first-half results, CRH reported that despite strong market fundamentals, including residential growth through urbanisation projects and a high government infrastructure budget, its volumes were two per cent lower than 2016. Margins were also behind due to "lower selling prices in a very competitive market and also higher fuel and power costs."
In April CRH CEO, Albert Manifold, was forced to defend the building materials group’s EUR300m-plus investment plans in the Philippines as its sales in the country, which it entered in 2015, had proved disappointing through the year to-date. Under questioning from analysts on a conference call, Mr Manifold said about a quarter of the Philippines’ cement needs are now being met by cheap imports from southeast Asia, which is pulling down pricing across the market. However, he insisted that local producers, including CRH, will have an advantage as they ramp up capacity and supply in the coming year, adding that Filipino cement buyers are naturally inclined to purchase from local, well-known producers. For the time being, however, CRH expect challenging market conditions in the Philippines to prevail in the second half and EBITDA will decline further.
