Poor demand leads to Philippine producers to price war

Poor demand leads to Philippine producers to price war
Published: 18 May 2011

Uncharacteristically low demand of cement during this summer season on poor government infrastructure projects has forced Philippine cement producers to engage in a price war to achieve a larger share of the small construction demand coming from the private sector.

Prices of cement have gone down to as low as PHP185-190/40kg bag (US$4.3) from a high of PHP220-230/bag (US$5.10) in the middle of last year when strong demand was boosted by the completion of the remaining infrastructure projects of the past administration.

Hardware stores are reportedly getting their supplies from cement firms at a price of PHP175 per bag. “At this price, cement firms are killing each other,” an industry official said.

The source said that cement firms are also fighting for a smaller market. This time of the year is supposed to be the height of construction activities, but the only ongoing construction activities are the ones with the private sector, most building construction for commercial spaces, condominium buildings and housing projects.

The private construction sector is robust but it is a smaller component compared to the infrastructure projects of the government.

The government, however, has no infrastructure activities in the first quarter this year.

As a result, cement sales dropped 6.7 per cent in the first quarter of the year compared to the same period last year, according to data from the Philippine Cement Manufacturers Association (CeMAP), when growth was fuelled by the completion of the past administration’s infrastructure projects and the election spending.

Earlier, CeMAP president Ernesto M. Ordoñez told reporters that sales dropped to 3.8Mt in the January-March period this year from 4.076Mt in the same period in 2010. Total sales in 2010 stood at 15.5Mt. Capacity utilisation expected to remain at 60 to 65 per cent while demand at 15-16Mt in 2011.