The use of regression analysis in deriving a model for the demand for cement
Date
1986-10-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
The use of regression analysis in deriving a model for the demand for cement
1. With construction activity plummeting by 27.6% (by 23.7% in 1984) cement domestic consumption dropped by 20.3% in 1985 (by 23.9% in 1984). Exports, a vital excess. cement supply relief valve of the industry, particularly for the more efficient plants in Mindanao, did not provide the market for the industry's cement surplus (potentially at 1.1 million metric tons), due to the inability of the cement companies to support the exporters with the necessary subsidies.
2. Cement prices are controlled by the Philippine Cement Indus- try Authority (PCI.A). The ex-plant ceiling price was increased by the PCI.A belatedly in June 1984 to 42.50 per bag and since then has remained unchanged. For comparison, the SGV report on cement production cost as of June 1984 indicated that the ex-plant cement price would need to be raised at that time to 58.84 per 40 kilo bag. While cement prices dropped, production and fixed cost inputs still increased (input materials by more than 100%; interest costs by 150%.; forex losses by more than 50%) in 1985.
3. The industry's unattractive domestic revenues were further aggravated by former president Marcos' announcement not to increase cement prices inspite of an increase in the sales tax from 5% to 10%. The industry additionally expects that the general increase in sales tax on products thru materials and supplies purchased by the industry will furthermore result in the increased production cost of cement.
Inspite of the government's widely-announced roll back in bunker fuel prices (having no substantial effect on cement price because all the cement firms' kilns are coal-fired) price of PNOC coal remained at 11,200 per MT compared to imported coal prices of not more than l,OOO per MT.
4. The Industry's twin problems of a depressed market and low cement price resulted in cut-throat competition, as the operating cement plants already look at marginal costing in determining cement market prices just to generate much needed cash required for operations and to provide employment to more than 10,000 employees (directly employed) and about 500,000 people indirectly benefitting from the cement business.
5. Cement firms cannot meet their financial obligations to the DBP and the private lenders amounting to more than 7 billion as of 31 December 1985.
6. Attempts to develop a rationalization program has been made as early as .August 1984. The program seeks to address four elements to make the industry viable: an adequate domestic price, an aggressive export program supported by fully funded export subsidy, a well-balanced industry marketing agreement, and a program of production cutbacks by way of plant closures. Inspite of the efforts of all parties (DBP,PCIA and Industry), nothing concrete has developed. In fact, and inspite of the industry's concern for a tremendous cement over-supply situation, DBP allowed Island Cement Corporation to operate under DB:E) management. Island's rated capacity is 7.9% of Industry's total capacity.
7. 1985 ended dismally for the cement industry. Domestic cement consumption in 1985 reached only 2,675,737 MT, a drop of another 21 compared to 1984 (or 40%, from 1983), with the following telling effects:
Unfavorably market conditions have forced Filipinas Cement, Continental Cement and Midland Cement to completely close with Universal Cement hardly able to operate continuously. Likewise, some other operating plants with more than one production line have voluntarily closed their less efficient kilns.
Against PCIL's rating of the industry's attainable capacity, the level of utilization reached only 52.2% in 1985.
A quick survey of coal, gypsum and other essential production supplies reveal critical levels of inventories due to lack of working capital, as costs (both fixed and variable) have outrun the revenues generated from domestic sales.
Description
Keywords
Cement demand, Construction products, Regression analysis, Cement, Construction materials