Infrastructure News Analysis

Cementing solid economic foundations

One of the best ways of measuring how a country’s infrastructure sector is doing, is to look at the sales of one material that is intrinsic to all new-building projects – cement. It’s a simple rule of thumb: if cement sales are up, construction is up; if cement sales are down, construction’s down. And in the Philippines right now, cement sales are booming and cement makers are expanding.

A brief look at a few of the country’s largest producers reveals that the building sector is strong and getting stronger. And that means – despite all the overblown concerns about the adverse impact the current administration and its policies will have, and are having, on everything from investor sentiment to economic growth – that in the corporate boardrooms there is a very optimistic view of the way the country is being led.

“The overall cement demand was fuelled by the government’s increased infrastructure investments and the private sector’s rollout of projects amid a healthy economy”.

Big sector player, Holcim (Philippines) Inc. – part of the multinational cement manufacturer, the Holcim Group – boosted net profits for January to September by 20% year-on-year, delivering PHP5.42 billion to its bottom line. In the past three months alone, Holcim’s net earnings went up by 15.3% YoY to PHP1.76 billion; operating cash flow rose by 11% YoY to PHP2.78 billion, and revenues hit PHP9.99 billion. And in the first nine months of this year, cash flow increased by 16.65% YoY to PHP8.53 billion.

The overall result is a 10% increase in revenues – PHP30.81 billion worth – at Holcim (Philippines) Inc and the company’s double-digit growth in cement sales is what’s done it.

According to Holcim: “The overall cement demand was fuelled by the government’s increased infrastructure investments and the private sector’s rollout of projects amid a healthy economy”. To meet the growth in demand, created by that focus on new infrastructure, the company is now in the process of implementing projects that will boost annual cement output by a further 25% – from 8 million metric tons to 10 million.

Another cement giant, CEMEX Holdings Philippines Inc. – an indirect subsidiary of CEMEX S.A.B. de C.V., one of the world’s largest cement groups – shows a similar story. In the first nine months of the year, consolidated net sales bumped up by 7% YoY to PHP19.8 billion. And this was almost entirely on the back of boosted cement sales, which in the third-quarter, July to September, contributed PHP6.6 billion, a 4.4% rise on the same period of last year.

And like Holcim Philippines, CEMEX Philippines is also positive about the future outlook for the local economy and the increased demand for their products that the government’s accelerated build-out of infrastructure is attracting.

A new CEMEX plant – costing US$300 million – is already in the planning stage. Cement output from this facility which is expected to be up and running by the second half of 2019, will add a further annual production capacity of 1.5 million metric tons. This will supplement output from the company’s two large existing integrated cement plants in Rizal and Cebu.

Meanwhile, Eagle Cement and affiliate, Northern Cement – both part of the San Miguel conglomerate – have announced their plans to increase production. In September, Eagle announced it will build a new plant in Davao City, Mindanao, a US$300 million investment that will expand output by an annual 2 million metric tons; the equivalent of 50 million bags of cement. Ground was broken for this new facility a week ago.

According to San Mig boss, Ramon Ang, increasing demand from “robust infrastructure activities” across the country was what propelled the decision for the Davao plant. The location was selected based on what he described as the bright prospects for Mindanao.

But this is only one of five new cement plants which Ang now has in the pipeline. Covering all three large island regions of Luzon, Visayas and Mindanao, the bill for these is around US$1 billon. Expected to be fully operational by next year, the combined annual capacity of these five plants will be 10 million metric tons.

And the story is the same at the country’s other cement makers. Large and small, they are streamlining and gearing up for greater and greater cement demand.

What all this illustrates is that these people and the corporations, in assessing the prospects for their businesses on the ground in the Philippines, have concluded – virtually universally – that the Philippine economy is moving forward quickly and that they need to keep up with it.

And for overseas investors, this provides a far more accurate indicator of the real state of play in the Philippine economy than any amount of unsubstantiated facts that members of an agenda-driven mainstream media – domestic and foreign – push out to show that the social and economic policies of President Rodrigo Duterte’s administration will end in ruin. In fact, the reverse is the case.

Duterte’s recent cementing (pun intended) of relations with Japan earlier in the week, similar initiatives followed through with fellow members of the Association of Southeast Asian Nations, Vietnam and Indonesia, and the landmark economic deals he pulled off in China, are all details of an overall picture that shows the Philippine economy – in its broadest sense for a change – is getting stronger and emerging faster than most predicted.

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