The World Bank has recommended importing cement in the short-term period to bring down prices, saying cost competition in the industry “appears to be constrained.”
The World Bank in talks with authorities earlier this month noted that cement prices in the Philippines were among the highest in Asia and needed to be brought down to levels comparable with other countries in the region.
Citing data from JP Morgan and national associations, the World Bank said cement prices in the Philippines averaged at $72 per ton in the fourth quarter of last year, higher than the $65-per-ton reported in Vietnam, $69 per ton in Indonesia, $50 per ton in Thailand and $49 per ton in Malaysia.
The World Bank said the local cement industry was “oligopolistic,” with the top three companies – Holcim, Lafarge and Cemex – accounting for nearly 90 per cent of the installed clinker capacity of 22Mt. The balance is held by four small independent producers.
The World Bank said the situation now was very much different in 1999 when more than 15 companies were operating in the market.
“Despite the fact that the industry is currently operating at about 55 per cent of installed capacity, prices have increased in the past four years,” the World Bank said. “Despite operating at low levels of capacity utilization and despite rising energy prices, the producers have been able to maintain profitability by adjusting prices by as much as 75 percent since 2000.”
The World Bank said bringing down cement prices would enable the government to save on cost given its huge infrastructure requirements and allow it to step up public investment in infrastructure.
The World Bank said Manila had drawn up a four-year P1.7-trillion infrastructure investment plan anchored on the significant expansion of investments in the transport sector, specifically roads.
The government has planned 12 major road projects running a total length of 1,400 kilometers that will require one million tons of cement. In addition, planned expansions in airport and airfield capacities as well as housing will increase demand for cement.
Citing the country’s medium-term development plan, the World Bank said the government had projected a cement shortage amounting to 29 million bags in 2011 and 88 million bags in 2012.
“Lower prices would also preserve growth momentum in the housing construction sector that is on an upward trajectory fueled by remittances,” the World Bank said in a discussion paper. The government could also consider strengthening its machinery to detect and deal with anti-competitive practices.”