Cement firms invest P12 B, defer adjustment measures

Published May 17, 2021, 1:50 PM

by Bernie Cahiles-Magkilat

The Tariff Commission (TC) said the local cement industry has complied with its adjustment plans to be able to compete against imports with P12.1 billion invested so far, although completion of some measures worth P73.8 billion have been deferred up to 2025 because of the pandemic and disruption in the manufacturing, service and transportation.

“The cement industry has substantially complied with its commitments to make a positive adjustment to import competition,” the TC said in its Final Report on the Monitoring of the Developments of the Philippine Cement Industry pursuant to Republic Act No. 8800 or the Safeguard Measures Act.

The final report was signed by TC Chairman Marilou P. Mendoza, and Commissioners Ernesto L. Albano and Marissa Maricosa A. Paderon on April 13, 2021.

Following the imposition of safeguard duty on imported cement in February 2019, cement firms under the Cement Manufacturers Association of the Philippines (CeMAP) were also required to implement adjustment plans to be able to compete with imports and not just rely on tariff protection. With that, the TC has to conduct a monitoring to ensure that local cement firms complied with their adjustment plans.

Based on its monitoring, the TC said that majority of the measures have been completed and are being implemented to increase productivity and efficiency.

However, the TC said that some measures/projects were deferred for completion/implementation up to 2025 due primarily to a factor that was beyond the control of the industry, such as the COVID-19 outbreak in 2020 and the disruptions in the manufacturing, service and transportation industries arising from the disease mitigation measures that were implemented.

Of the 20 original adjustment plans CeMAP member companies committed, the TC reported that 12 were completed/implemented in 2019 and 2020 with total industry investments of P12.1 billion.

The remaining 8 projects worth P73.8 billion were either cancelled/replaced or deferred for completion to 2021 up to 2025. But TC said the industry remained determined to push through with its deferred projects to strengthen its competitiveness vis-à-vis imports.

The TC also noted that the adjustment measures implemented by the cement industry helped cushion the adverse economic effects of the unexpected pandemic.

It said that decreases in sales, production and capacity utilization were less severe than what would have occurred if the cement industry did not implement its adjustment measures.

In addition, savings in its manufacturing costs and operating expenses resulted in lower domestic selling prices.

Cost to produce and sell also fell in the first half of 2020 due to the significant reduction in direct material cost (averaged 32%) and operating expenses (averaged 19%), indicating the effectiveness of the cost-reduction/optimization efforts of the domestic industry.

It added that the recovery of operating income of the cement firms is a positive indication of the progress and development in the operational efficiencies of the cement producers.

In addition, the difference between the domestic prices of locally produced cement and estimated landed cost of imported cement narrowed in 2020. Domestic selling price fell to P3,963 per MT in the first semester of 2020, thus bringing it closer to the average landed cost of top cement exporters (China, Thailand and Vietnam) at P3,561 per MT.

TC said that difference between the domestic prices of locally produced cement and estimated land cost of imported cement from the top cement exporters also narrowed in 2020 from a 2017-2019 average difference of P551 per metric ton to P402 per metric ton in the first semester of 2020 due to the cost cutting measures in the industry’s adjustment plans.

Even as demand for its product fall drastically due to the pandemic, the imposition of the safeguard duty starting February 2019 helped the domestic industry retain its dominance in the domestic market with a share of 79 percent as of the first semester of 2020.

As such, TC said that in 2019 income from operations recovered and regained its 2017 level. Such positive trend can be attributed to the effectiveness of the cost-reduction efforts of the industry. Return on sales was positive throughout the period of review albeit dipping in 2018 due to the significant increase in cost of sales which led to lower income from operations.

With that, the TC stressed it is important that the industry persists in the completion/implementation of its adjustment plans at the earliest possible time.

With the implementation of their adjustment plans, the TC said that the domestic industry is moving towards increased competitiveness.

In general, TC said the imposition of the safeguard measures on imports of cement can be said to have been helpful in providing support to the industry.

“To date, it can be concluded that the intervention was timely and proper, as it has provided breathing space for the domestic industry and has mainly contributed to increasing the industry’s market competitiveness,” the TC said.

With these findings, the TC said that it is up to the Trade and Industry Secretary Ramon M. Lopez to either maintain the imposition of safeguard measures as previously determined or consider modification thereof taking into account efforts undertaken by the domestic industry, changed economic/financial circumstances, competitive discipline, and the public interest.

It could be recalled that the DTI Secretary imposed a definitive duty of P10 per bag of imported cement in 2019. following the affirmative final determination of the TC that the surge in imported cement has caused serious injury to the local industry.

A year after, the DTI Secretary modified the safeguard duty to P9.80 per bag of 40-kilogram cement from P10 per bag on the first year of the three-year safeguard measure.