By Bernie Cahiles-Magkilat
Cement traders have warned government that imposing safeguard duty on imported cement will be inflationary as it would trigger increases in prices of construction materials, contributing to the worsening inflation level in the country.
Ed Sahagun, former president of cement manufacturer Holcim Cement and now president and CEO of cement importer Philcement Corp., raised this warning as the government is conducting a motu propio investigation on imported cement to determine if importation has indeed caused serious injury to the domestic industry.
“Prices will definitely increase once a safeguard measure is implemented but it will not stop imports to come in. If that will happen, consumers will be at the mercy of high prices of construction materials,” warned Sahagun.
Napoleon Co, chairman of cement importer COHACO and NGC Land Corp., said that prices of cement have been stable at P205-P225 per 50 kilogram bag depending on the area but with safeguard duty prices could rise up to P250, which could be a historical high for Metro Manila.
In remote areas like Tuguegarao, he said, prices have already gone up to P240-P250 per bag because of the P40 per bag freight cost.
But both said that what is helping cement prices stay at stable level now is largely due to importation as it bridges supply gap.
The cement importers explained that domestic production is estimated at 24 million metric tons as against total demand of between 31-32 million metric tons.
The shortfall of 10 MMT is being addressed by imports, which account for 10 percent of overall supply, but the small traders account for 6 percent only of total importation and the rest by cement manufacturers themselves.
According to Sahagun, local cement manufacturers account for 67 percent of total cement importation in 2016 alone and imported 95 percent of clinker. This means, the pure traders accounted for the remaining 33 percent only of total import volume.
Similarly in 2017, around 33 percent of imports came from them, and 99 percent of their clinker were also imported, a clear indication that local cement firms are running out of capacity.
Sahagun also debunked claims that imports have caused serious injury to the domestic cement manufacturers.
He pointed out that a closer look at the financials of the three global cement companies will show they are are earning in billions.
“They are still making a lot of money in billions, not millions. In 2016, I made P6.5 billion,” said Sahagun referring to Holcim’s financial standing before he left the company to rejoin the Phinma Group.
“How can you damage an industry that is only impacted by like 6 percent. You’re so inefficient if at 6 percent import competition you’re throwing in the towel already. If you cannot make money on your 94 percent, how can you even make money with 100 percent. But the fact is actually they are making money,” he argued.
Given the prevailing circumstances, cement traders were wondering why the DTI has to conduct a motu propio when there is a clear shortage in domestic production because there is not enough capacity by the existing cement companies.
The traders further explained that the obtaining situation now is different from the time when then DTI Secretary Mar Roxas imposed a safeguard duty on imported cement in 2002.
“In fairness to Mar Roxas there was no local production capacity problem then and there was no demand also and yet imports continued to come in so the local industry really suffered,” recalled Sahagun as he justified the imposition of safeguard measure on imported cement but which was later overturned by the Tariff Commission.
“Today, when you talk about safeguard, the surge in import only came in substantially in 2016 and 2017. When you look at that number, the local industry is the one importing significantly. Why? Because they don’t have anymore capacity. So even if you have to impose safeguard today, all that will happen is you will just increase prices, but imports will still come in because there is insufficient local supply. Unlike in 2002 when there was enough supply and imports continue to come in causing prices to drop and causing injury to the domestic industry. In today’s situation, any additional safeguard measure will just be passed on to consumers who will have no choice because the local industry does not have enough capacity. It becomes inflationary, especially at this point where the country is actually suffering,” he said.
Once a safeguard measure is implemented, Sahagun said it will not only affect ordinary Filipinos but will impact the entire construction industry including the government’s “Build, Build, Build” program, including the housing sector.
This is because the construction sector is one of the primary drivers of the economy as it impacts on 18 different industries, such as steel, electrical, paints, chemicals, appliances, logistics, food, labor, housing, among others.