A resurgence of government spending in infrastructure will perk up the cement industry this year, according to online brokerage firm Colfinancial.com
For 2020, Colfinancial.com expects average cement volumes to grow 8 percent.
“We expect public construction to rebound this year as the government catches up on its infrastructure spending. Note that infrastructure spending dropped 5.5 percent for the first 10 months of 2019 due to the budget delay and mid-term election construction ban,” it said.
Colfinancial.com said with the recent approval of the P4.1-trillion budget for 2020, the government will be able to expedite its projects this year.
The dampened government spending last year led to slower growth of 8.8 percent in the construction industry for the first nine months compared to 12.1 percent the previous year, Colfinancial.com noted.
Public construction was down 13.6 percent due to the delayed passage of the 2019 budget and the construction ban during the midterm election period.
Private construction meanwhile grew 17.7 percent. This has a larger share of the whole construction pie in the Philippines at 70 percent.
Colfinancial.com said this year, public construction is expected to be more active given the P972.5-billion budget, or 23.7 percent of total, allocated to infrastructure developments.
“This is 19.1 percent higher than the P816.2 billion infrastructure development allocation in the 2019 budget,” it said.
It added private construction will continue to remain healthy amid the growing economy.
Colfinancial.com said these bode well for the cement business, with volumes catching up and the average selling price slightly improving this year.
“Moreover, the imposition of the definitive safeguard duty on imported cement should further boost the demand for locally produced cement as this would make it less attractive for cement exporters to trade with the Philippines,” it said.
It noted that in the first nine months of last year, the growth of cement import from traders slowed down to 24 percent compared to 51 percent in 2018.
For 2020, Colfinancial.com expects average cement volumes to grow 8 percent, up from 4 percent in the first nine months of last year. The average selling price will likely grow by 1.5 percent.
“We expect cement companies’ margins to remain stable this year due to offsetting effects in input cost prices. While the tensions between the US and Iran could push up oil prices, this would likely be offset by subdued coal prices,” it said.
“Note that oil prices are currently up by 5 percent from its average price of $63/barrel in 2019, while coal prices are down 11 percent from its average price of $78/MT last year.
Note that fuel and power account for 45 percent of cement companies’ cost of goods sold,” it added.
Colfinancial.com also said it expects cement companies to continue implementing cost saving initiatives this year.
