Weak infra spending to keep cement demand flat

MANILA, Philippines — An umbrella group of cement manufacturers in the Philippines expects cement demand to finish the year flat, as construction activity across public and private projects remains sluggish.

Reinier Dizon, president of the Cement Manufacturers Association of the Philippines (Cemap), said cement demand from January to September was down 2 to 3 percent from the same period last year.

READ: Why Government Infrastructure Spending Matters for Jobs and Business

But the group is banking on a pickup in construction activity in the fourth quarter to help demand recover and at least match last year’s estimated 34 million metric tons (MT), equivalent to about 85 million bags.

“Perhaps that’s not a bad thing considering what we’ve gone through this year,” Dizon told reporters on the sidelines of a business summit organized by the Federation of Philippine Industries, where he also serves as president. 

“(We have) an inflationary environment and government spending has been rather muted this year,” he added. 

That subdued outlook comes as government infrastructure spending remains weak amid heightened scrutiny of public works projects following the flood control fiasco, which erupted more than a year ago.

In July, infrastructure and other capital outlays slipped 4 percent to P89.6 billion. The slowdown was more pronounced in the first seven months, with spending plunging 36 percent to P457 billion from P713.5 billion a year earlier.

Private construction activity has also shown signs of weakness, with approved building permits falling 31 percent to 10,968 in August, the lowest level in more than six years.

Still, Cemap hopes the resumption of government infrastructure projects, particularly those put on hold following the flood control controversy, could provide a much-needed lift to cement demand.

“Hopefully, what will be the game changer for Q4 will be the DPWH (Department of Public Works and Highways) side,” Dizon said.

Another potential boost could come from El Niño, as drier conditions generally favor construction activity. Dizon, however, acknowledged that the weather phenomenon could still be “tricky” as it could also bring episodes of heavy rainfall.

Production surplus

This year, Dizon expects cement imports to decline by about 30 percent, largely due to the imposition of safeguard duties of P349 per MT on shipments from China and Indonesia after they exceeded exemption thresholds.

Cement imports could reach around 4 million MT this year, based on Cemap estimates.

READ: Balisacan banks on flood control cleanup to revive growth

Even with imports projected to decline, Dizon emphasized that the Philippines still has more cement production capacity than domestic demand can absorb.

The country currently has the capacity to produce approximately 52 million MT of cement annually, compared with demand of just 34 million MT last year.

That leaves roughly 18 million MT in excess annual production capacity, even before accounting for imported cement.

READ: Gov’t infra spending decline eases at H2 start

With existing capacity already far exceeding domestic requirements, Dizon sees little immediate incentive for manufacturers to commit to additional capacity-expanding investments.

He also cited rising energy costs and the weakening peso as additional challenges facing the industry.rements, Dizon sees little immediate incentive for manufacturers to commit to additional capacity-expanding investments.

He also cited rising energy costs and the weakening peso as additional challenges facing the industry. /pai