INDUSTRY PROFILE CEMENT

(As of 21 May 2009)

I.

Coverage/Features

The cement sector covers the manufacture of clinker, portland cement, pozzolan cement and other types of cement. Portland cement is a mixture of around 96% clinker and 4% gypsum, while pozzolan cement is a mixture of around 77% clinker, 3% gypsum and 20% pozzolan. The demand for portland is about 73% while pozzolan is around 27%. Other types of cement, e.g., hydraulic cement are produced per specification of customer. Pozzolan, although cheaper than portland and has been in the market since the early eighties, has not gained significant popularity to be considered as a substitute product for portland. This may be attributed to the fact that compared to portland, pozzolan has a lower compressive strength as specified by the Philippine Standard (Table 1): Table1. Compressive Strengths of Cement PNS STANDARD Strength (Kg./sq. cm.) 281 211

Type of Cement Portland (Type I) Pozzolan (Type P)

Curing Time (Days) 28 28

II.

Current Status

To date, there are currently 15 cement manufacturing plants operating in the country, 9 of which are located in Luzon, 2 are in Visayas and 4 are in Mindanao. Cement producers in the Philippines are represented by the Cement Manufacturers Association of the Philippines (CEMAP), Inc. a. Industry Performance vs. Demand for Cement Shown in Table 2 is the historical supply/demand for cement for the period 2000 to 2007. Table2. Historical Demand-Supply Situation 2000 - 2007 (In Million Bags)*
Imports (Cement & Clinker) 37.6 58.4 16.1 2.23 0.318 2.9 6.7 7.6 Exports (Cement & Clinker) 33.6 46.6 37.2 41.4 38.1 63.4 55.2 48.7 Retail Price of Portland Cement in Metro Manila, ending December (per 40-kg bag) ** P126 P127 P95 P120 P147 P158 P170 P175

Year 2000 2001 2002 2003 2004 2005 2006 2007

Local Production 299.0 284.5 334.9 326.7 326.4 309.2 301.0 326.2

Apparent Demand 303.0 296.3 313.8 287.5 288.6 248.7 252.5 285.1

% Inc./Dec.

0.80 (25) 26 23 7.5 7.6 2.9

* 1 bag is equivalent to 40 kilos. ** Source: Construction Industry Authority of the Phils. (CIAP) and Department of Trade and Industry Price Monitoring Unit (BTRCP-PMU)

b. Demand Supply Forecast The demand forecast as shown in Table 3, is projected by the average of 12% growth rate of construction industry per Medium-Term Philippine Development Plan (MTPDP) 2004 2010. The supply forecast on the other hand, is based on existing/operating fifteen (15) cement plants with an estimated annual capacity of around 408 million bags of 40 kg. /bag (16.327 million MT) as of end of 2007. Table3. Supply Demand Forecast (2008-2015) (In million bags) Year 2008 2009 2010*** 2011 2012**** 2013 2014 2015 Supply 408* 408* 426.2 426.2 454.4 454.4 454.4 454.4 Demand** 319 357 400 448 502 562 629 704 Surplus (Deficit) 89 51 26.2 (21.8) (47.6) (107.6) (174.6) (249.6)

Note: * Based on Cement Industry Kiln Capacity (Dry Type only since Wet Type kilns are no longer in operation) ** Demand is projected by average of 12% growth rate of construction industry per MTPDP 2004-2010 ***By 2009, Eagle Cement Corp. will commence operation thus adding 18.2 million bags of supply in 2010 based on its registered capacity. ****South Western Corp. will start operation in 2011 and will give additional 28.2 million bags of supply in 2012.

III.

Competitive Advantage

a. Raw Materials The Philippines has an abundant supply of cement raw materials such as limestone, shale/sandstone, siliceous sand, lime, diorite, calcite, and probably gypsum. The availability of limestone for cement production, per record of the Mines and Geosciences Bureau (MGB) is estimated in l992 at around 4 billion metric tons (Table 4). The expected life is around 260 years. Table4. Limestone Deposits in the Philippines (For the Cement Industry) Region I II III IV V Estimated Deposit (Million MT) 1,082 21 333 499 688 TOTAL Region VI VII X XI XII 3,876 Estimated Deposit (Million MT) 80 529 81 56 507

b. Preferred Location The sites of existing and proposed cement plants are Regions 1, 3, 4, 5, 6, 7, 8, 9, 10, 11, and 12. The project must locate in an area where there is available power, and accessibility to the source of raw materials and port facility. The abundance of raw materials, availability of skilled manpower and the existence of a growing domestic market make the Philippines a suitable site to base a cement manufacturing operation. c. Cement Export The export of cement and clinker for the period 1986-2007 is shown in Table 5.

YEAR 1986 1987 1988-1992 1993 1994 1995-1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Table5. Cement and Clinker Export (000 bags) (000 MT) Clinker (000 MT) 2,618 104.7 964 38.6 507 20.3 15.6 107 4.3 2,929 117 17,275 691 311 33,575 1,343 46,600 1,864 25,866 1,035 264 24,511 980 675 20,489 820 703.3 26,350 1,054 1,482.4 18,114 725 1,482 8,914 357 1,593

d. Cement Production and Sales The total production capacity of the cement industry, as shown below, is pegged at 22,173,000 at present. However, only 59.60% of said capacity is being utilized for market demand. The data also shows that domestic production of cement products has variably increased annually, reaching its peak in 1997. Domestic sales have almost been consistent from 2002 to 2008, ranging from 11M to 13M metric tons per year (MTPY). The export performance, on the other hand, experienced an all-time low from 1988 to 1998, pitching at zero value. Over time, the total demand for cement products markedly increased, while import performance had its peak in 2000 and 2001, hitting 2M MTPY mark. Table6. Philippine Cement Production and Sales (in metric tons)
SALES YEAR PRODUCTION 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source:

Domestic 3,127,895 3,969,058 4,212,182 5,884,228 6,143,705 6,518,276 6,604,364 8,003,256 9,596,449 10,609,088 12,273,251 14,888,398 12,714,316 11,869,364 10,478,270 9,481,246 12,263,386 12,109,992 12,171,208 11,468,626 11,470,291 12,709,330 13,103,715

Exports 104,700 38,542 0 0 0 0 0 0 0 0 0 0 0 639,066 1,342,928 1,863,986 1,034,641 980,433 819,574 1,053,984 724,551 356,571 1,570,312

TOTAL SALES 3,232,595 4,007,600 4,212,182 5,884,228 6,143,705 6,518,276 6,604,364 8,003,256 9,596,449 10,609,088 12,273,251 14,888,398 12,714,316 12,508,430 11,821,198 11,345,232 13,298,027 13,090,425 12,990,782 12,522,610 12,194,842 13,065,901 14,674,027

IMPORTS 0 165,000 0 454,064 923,913 0 681,627 0 9,669 480,417 679,612 351,779 180,171 474,430 1,579,027 2,233,180 337,600 9,700 12,705 116,302 243,695 302,003 113,301

TOTAL DEMAND 3,127,895 4,134,058 4,212,182 6,338,292 7,067,618 6,518,276 7,285,991 8,003,256 9,606,118 11,089,505 12,952,863 15,240,177 12,343,794 12,057,297 11,714,426 12,600,986 12,119,692 12,183,913 11,584,928 11,713,986 13,011,333 13,217,016

% Change 32.20% 1.90% 50.50% 11.50% -7.80% 11.80% 9.80% 20.00% 15.40% 16.80% 17.70% -4.30% -2.30% -2.80% 7.60% -3.80% 0.50% -4.90% 1.10% 11.10% 1.60%

3,282,594 3,987,497 4,090,959 5,873,389 6,208,174 6,500,909 6,666,946 7,961,406 9,570,798 10,553,725 12,429,101 14,680,757 12,887,858 12,557,524 11,959,015 11,378,329 13,396,618 13,066,831 13,056,920 12,367,614 12,070,822 13,047,583 13,369,261

12,894,487 -15.40%

Cement Manufacturers Association of the Philippines (CEMAP), Inc.

e. Government Support Under Part I, II. Mandatory Inclusions, R.A. 7942 (Exploration, Mining, Quarrying, and Processing of Minerals) of the 2007 Investments Priorities Plan (IPP), cement manufacturing is included, provided it is integrated with quarrying, which incentives shall be limited to those provided under E.O. 226, otherwise known as the Omnibus Investments Code of 1987. However, in the 2008 Investments Priorities Plan, cement manufacturing was excluded in the mandatory inclusions, but under the preferred activities for ARMM, the cement manufacturing industry is listed, provided that the plant is located in the ARMM region and can produce at least 1.0 million MTPY capacity (clinker based). Even if the cement industry is excluded in the mandatory inclusions, under Part III. Specific Guidelines, I. Preferred Activities, cement-related projects and/or activities can still be prioritized if the Strategic Activities guidelines are followed and satisfied. Since the 1998 IPP, cement manufacturing is listed under the priority areas of activities in the Autonomous Region of Muslim Mindanao (ARMM). The ARMM List covers priority activities, which have been independently identified by the Regional Board of Investments of the ARMM (RBOIARMM) in accordance with E.O. 458. The RBOI-ARMM can grant registration and administer incentives to activities in the IPP, provided these are located in ARMM and subject to General and Specific Guidelines.

BOI/SPD/OID