No import tax, no expansion

Local units of some multinational cement producers have warned that it would be difficult to expand their operations unless the government protects them through a definitive safeguard measure against imported cement.

Member firms of the Cement Manufacturers’ Association of the Philippines (Cemap) said last week that a decline in their profitability made it hard to convince their investors to give more money for expansion.

While they blamed the decline on the surge of cheaper imported cement, company officials added that their production also suffered from logistic costs and increasing production expenses.

These firms are the local units of multinational companies Taiheyo, Republic Cement, Holcim and Cemex—all of which claim being seriously harmed by imported cement.

For now, imported cement already carries the weight of an P8.40-per-bag tax, or a safeguard duty of P210 per metric ton, imposed after a preliminary probe made by the Department of Trade and Industry (DTI).

The decision to impose a definitive safeguard measure, however, will come from the Tariff Commission (TC). It is not yet clear when this decision will be made, but the commission gave both manufacturers and cement importers until the end of this month to give their final comments on the issue.

Representatives of these large cement firms made their plea during the TC public hearings last week. If the commission decides in favor of manufacturers, the latter will commit to an adjustment plan to improve their operations and be able to compete with imports as required under the Safeguard Measures law.

“This market is poised to grow because of the fundamentals and all this ‘Build, Build, Build’ program. But even with that, we do need to expand additional capacity,” said John Reinier Dizon, who handles the strategy and business development of Republic Cement and Building Materials Inc.

Republic Cement, the joint venture between Aboitiz and European cement firm CRH, is in the process of constructing additional capacity for its operations, including adding a million metric tons of annual capacity to its plants in Bulacan and Iligan City, according to Dizon.

“But having said that, it’s very difficult to convince our principals to commit to invest in additional kiln lines, in additional cement capacity, after the ongoing investments if we don’t turn around, if we don’t see this tariff is implemented,” he added.

Cemex Holdings Philippines made a similar plea. According to its presentation during the hearing, the local unit of the Mexican company planned to invest $235 million to increase the capacity of its Solid Cement plant by 1.5 million metric tons by 2020.

This will make the plant in Antipolo, Rizal, capable of producing 3.4 million MT annually from its current level of 1.9 million MT.

“It will become more difficult to convince our investors that this is a good investment,” said Jose Gallardo Valdes, enterprise risk management director of Cemex, when asked by Cemap’s lawyer if they could still expand without the safeguard measure.

Taiheyo Cement Philippines Inc. is in the process of preparing the necessary documents for an expansion plan, which will see a 120-percent growth in the capacity of its cement kiln in Cebu, according to Emylita Ortega, company chief specialist for special projects.

She said the local unit of the Japanese company has not given some employee benefits because of “budgetary constraints” that were caused by “the decrease in profitability.”

“I can’t just assure that the expansion will keep going because our profitability has been on a decline,” she said.

Holcim Philippines Inc., the biggest cement producer in the country, has also been suffering from increasing production costs and a decline in its selling price, according to Zoe Verna Sibala, company vice president of strategy.

“So it is no surprise, indeed, that our financial performance reflected the impact of escalating production costs and declining prices. This trend now puts at risk our remaining investments to at least expand capacity,” she said.

“Personally, as head of strategy in Holcim, it has become increasingly difficult to request for substantial allocation of capital with this financial trend, financial performance to support our investment request. We have to compete with alternative investment options from other business units,” she added.