Cement industry vulnerable to injury without safeguards

Festering problems such as the high cost of electricity and the lack of local sources of fuel had resulted in local cement being at a disadvantage against rivals in the region.

The Tariff Commission ruled last 5 October to end the safeguard duty on cement on 22 October after assessing there is no imminent threat of serious injury to the domestic industry.

Nearly a week after, on 11 October, the commission issued another ruling extending anti-dumping tariffs on specific Vietnam brands which are being sold at cut-throat prices.

Industry leaders said they are keeping their options open on their next move after the TC decision.

“I understand if the TC issues a negative recommendation, the Department of Trade and Industry will have to recognize that. The remedy is for the petitioners to appeal,” a high-ranking DTI official said.

An industry source said the safeguard duty must stay since local manufacturers do not enjoy the advantages of imports, for instance from Indonesia which has abundant coal resources, or from Vietnam where their electricity cost is subsidized based on the Philippines cement industry roadmap by international think-tank LEK Consulting.

“We are just recovering from the pandemic but are also now facing an energy crisis,” the source added.

The industry official said 70 percent of the production cost of cement is accounted for by fuel and power costs primarily the cost of coal.

“Domestic manufacturers are on the road to recovery as the economy recently opened up but this can be compromised if the safeguard measure is not extended,” an industry veteran added.

The Daily Tribune source said that the law allows the retention of the safeguard measures.

Under the provision of Republic Act 8800 or the Safeguard Measures Act, “an extension of the measure may be requested by the petitioner if the action continues to be necessary to prevent or remedy the serious injury and there is evidence that the domestic industry is making a positive adjustment to import competition.”

Rocketing energy prices

Additional challenges come from the huge spike in fuel and energy prices, spurred by the Eastern European conflict and the supply chain crisis.

Based on the benchmark Newcastle Index, the price of coal hovers around $400 per ton free-on-board compared to around $100 per ton about a year ago and $200 per ton at the start of 2022.

Local players, nonetheless, invested heavily, or up to P60 billion, in the past three years to improve their competitiveness against imports.

Major producer Republic Cement, for instance, has invested in waste-to-energy projects and renewable sources of energy like solar power in its adjustment plans, Dizon explained that these cannot fully substitute for their fuel and electricity requirements.

While Republic Cement’s gross profits in 2017 were down by 37 percent compared to 2016 and by 17 percent in 2018.

Republic Cement attributed the 29.6 percent rise in its gross profits in 2020 to the P10 billion invested in its adjustment plans.

The upgrades are being undertaken to also meet the rising demand as the economy leapfrogs post-pandemic.

“The whole point of extending the safeguard measures is to give us time to invest. For us to be able to invest and re-invest, we also need to improve our profitability,” the official added.

The industry group Cement Manufacturers Association of the Philippines said while domestic manufacturers imported cement, the percentage of their imports tumbled to single digits by 2020 and 2021.

The downswing is in line with CeMAP’s advocacy to promote local industries by buying local products. This impacts the economy as a whole as it does not only generate more employment but increases tax revenues as well for the government, among others.

Local cement companies Cemex Holdings Philippines and Holcim Philippines also expressed the necessity for safeguards extension to give them time to complete their adjustment plans.

Foreign traders back TC ruling

During the TC proceedings, representatives from Indonesia and Thailand cement manufacturers indicated their opposition to the extension of the safeguard.

Instead of selling more, Republic Cement found that the market remained “suppressed” due to the competition from cheap imports.

Executives from cement manufacturers stressed that the conditions which justified the imposition of safeguard measures against imports three years ago remain practically unchanged and so an extension is imperative.

Import data from the Bureau of Customs and the TC Staff Report showed the volume of imported cement continues to increase while maintaining low retail prices despite the increases in the prices of fuel and energy.

The TC Staff Report indicated the share of imports to domestic production in terms of volume increased steadily from zero in 2013 to 5.3 million metric tons in 2019, increasing further to 6.88 MMT in 2021.

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