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Mixed fortunes in Southeast Asia: the Philippines

World Cement,

The Philippines: years of reconstruction

Soon after Typhoon Haiyan hit the Philippines, Reuters reported that the government’s initial estimate for rehabilitation could be as high as US$5.7 billion. World Bank figures for 2012 indicate that half of the country’s population lives in vulnerable, storm-prone cities numbering over 100 000 inhabitants. One third of the homes in Tacloban City, which suffered the greatest damage, had wooden external walls while some had grass roofs. Quite apart from the damage caused by the typhoon, the country faces the challenge of dealing with a housing shortfall of approximately 3.9 million units. This figure could rise to 10.21 million by 2030. The government must be aware that unsuitable building materials played a part in exacerbating the storm’s damage and that investment in new builds will be absolutely essential throughout the coming years. ‘A key component of the country’s economy, the construction industry, has been earmarked for strong growth in 2014,’ reported Business World Online. This is particularly important as the country addresses the housing shortage and begins to rebuild the areas that were hardest hit by the typhoon.

Even before the typhoon struck, the construction industry was on the up, enjoying double-digit growth. The increase in activity has boosted the cement industry.

In October 2013, Ernesto Ordonez, President of the Cement Manufacturers Association of the Philippines (CeMAP), announced that the group’s six members sold a combined 4.8 million t of cement between July and September 2013, an increase of 9.2% on the same period in 2012. Producers moved 18.4 million t of cement in 2012, up 17.5% on sales for the previous year. The capacity utilisation of the cement plants exceeded 80% in 2013 and the industry’s growth is expected to continue in 2014, despite the high costs of power and transport.

The surge in demand for cement has resulted in a flurry of construction activity and new projects. In May 2013, San Miguel Corporation (SMC) announced plans to spend US$750 million on the construction of three cement plants to boost production in the country and support growth in the infrastructure sector. The total output of the plants will be 2 million tpa. At the time of the announcement, the corporation’s Chief Operating Officer, Ramon S. Ang, said, “We are bullish about the cement industry. Around Southeast Asia the per capita consumption of cement is 1000 kg but in the Philippines it is just 170 kg, so there is really a big upside. We want to be the dominant cement manufacturing player in the Philippines. We need five more plants to become a leader in the country. Today, foreigners control 9% of the market. We are targeting 30% market share.” SMC currently owns Eagle Cement and Fortune Cement and has a 35% stake in Northern Cement.

In October 2013, Taiheiyo Cement Philippines, Inc. (TCPI) announced plans to invest US$10 million in the expansion of its plant in San Fernando, south of Cebu. TCPI’s President and Chief Executive Officer, Satoshi Asam, noted that the company was prompted to expand by the country’s encouraging economic growth and repositioned debt.

At the time of writing, Holcim Philippines issued a press release stating that the company would soon decide on the contractor who will construct the new plant in Norzagaray, Bulacan. The plant will add around 2.5 million t to the company’s annual production by the end of 2016. Holcim was also on track to fully revive its grinding facility in Mabini, Batangas. The new facility will boost production capacity by almost 1 million tpa. Another project involving a new cement grinding plant has been awarded by Lafarge Republic to Fives FCB. The French company will supply a Horomill® 3800 and classifier, together with associated equipment, to the Teresa plant in the Rizal province. The new facility will add 850 000 t to the plant’s capacity in 2015.

The Siam Cement Group (SCG) is considering the possibility of creating a fibre cement board plant. Demand in the Philippines for such a product is estimated to be approximately 30 million m2, which is supplied by various companies. If SCG decides to go ahead with the investment, the new plant would be able to supply 5 million m2, not only for the domestic market but also to other countries in Southeast Asia.

Bloomberg recently reported that the economic resurgence led by President Benigno Aquino has won the Philippines its first investment-grade scores this year from Moody’s Investors Service, Fitch Ratings and Standard & Poor’s. While increased spending has sheltered the nation from global turbulence, the government has said there will be damp growth until the first half of 2014; however, the nation’s fundamentals remain favourable. As stated by an economist at HSBC Holdings in Hong Kong: “Inflation is benign, credit is cheap and domestic demand is strong.”

Read Part 2 here.

Written by Paul Maxwell-Cook. This is an abridged version of the full article, which appeared in the February 2014 issue of World Cement. Subscribers can view the full article by logging in.

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