Taiwan Cement Manufacturers' Assoc. Charges China Suppliers of Dumping

The Taiwan Cement Manufacturers' Association (TCMA), formed by Taiwan's top-eight cement producers, has filed a complaint with the Ministry of Finance (MOF) and the International Trade Commission (ITC) under the Ministry of Economic Affairs, charging China of dumping cement on the island and also suggesting the authorities levy anti-dumping taxes on cement from China.

Lower-priced China-produced cement began encroaching on the Taiwan market in the fourth quarter of 2009, forcing prices of Taiwan-produced cement to drop over 20% from the earlier NT$2,500 to the current NT$2,000 per ton, the biggest decline in five years.

According to the statistics compiled by the TCMA, Taiwan imported in 2009 two million tons of cement, for a year-on-year growth of 300,000 tons, with imports cornering over 20% of the domestic cement market.

Unreasonably Cheap Import
Checking with China's customs enabled the TCMA to confirm that China's cement producers currently export cement to Taiwan at between US$35 and US$36 per ton FOB (free on board). Based on the customs statistics, the TCMA notes cement importers in Taiwan pay between NT$1,900 and NT$2,000 per ton for cement from China including overhead costs. As such, the TCMA is suspicious, assuming producers receive no subsidies, of how the importers can sell cement from China for under NT$2,000 per ton in Taiwan.

Furthermore, the power rationing measure imposed by China's government is pushing up prices in that cement market. For instance, cement in Jiangsu Province is quoted at 330 renminbi per ton or approximately between US$49 and US$50 per ton. With China's cement producers currently quoting export prices at between US$35 and US$36 per ton, obviously lower than domestic prices, the TCMA charges China's cement producers of dumping in Taiwan.

According to the investigation by the TCMA, China currently exports cement to Singapore and the rest of Asia for around US$40 per ton, clearly higher than the US$36 quoted for the Taiwan market.

Plummeting Profitability
Because of the underselling rivalry from China's cement producers and exporters, the TCMA says most of Taiwan's cement firms have seen their profitability from the core business plummet in the first half of this year.

For instance, Taiwan's top-two cement firms—Taiwan Cement Corp. and Asia Cement Corp.—saw a sharp drop in operating profit margin in the first half of this year. Taiwan Cement's gross profit margin declined by two percentage points year-on-year to 6.22% in the first half, with operating net income totaling NT$140 million, down a whopping 56% year-on-year.

Asia Cement's operating profit margin declined by some 14 percentage points to 6.38% in the first half from 20.27% earlier, with operating net income totaling NT$15 million as compared to last year's NT$726 million.

Other leading cement producers in Taiwan with plummeting profitability in the first half of this year include Universal Cement Corp., Chia Hsin Cement Corp., Lucky Cement Corp., Hsing Ta Cement Corp. and Southeast Cement Corp.

Shoddy Quality
Taiwan Cement chairman Leslie Koo notes that China's dumping of cement in Taiwan has wreaked havoc on the profitability of all eight cement producers on the island in the first half of this year. Koo also warns that cheaper cement from China will compromise engineering quality of public works because China-produced cement contains significant additives, according to the investigation by the MOEA's Bureau of Standards, Metrology and Inspection.

The TCMA's filing of dumping charges also calls for the MOF and MOEA to investigate alleged unfair practices by China's cement producers and exporters, during which the TCMA has the right to ask the authorities to levy anti-dumping taxes on the alleged culprits from China. The dumping investigation is expected to be finalized in less than 10 months after TCMA's filing of the complaint.

The MOF's Department of Customs Administration, while dutifully accepting the formal dumping complaint filed by the TCMA, says the case will be processed according to relevant regulations. If the dumping allegation is eventually proven, the guilty cement producers and exporters in China will have to pay anti-dumping taxes at the rate of 100%.

Similar precedents have been set: On July 19, 2002, the MOF imposed 100.99%-126.81% anti-dumping taxes on Portland cement and clinkers from Japan, and 42%-104.48% taxes on such products from the Philippines.

Dumping Refuted
Amid the dumping charge filed by the TCMA, Taiyu Enterprise Corp., one of Taiwan's leading cement importers, contends that Taiwan's cement importers have little sway on product prices, which are dictated by the top-two cement producers on the island: Taiwan Cement and Asia Cement.

Taiyu president L.T. Wu says all the local cement importers are eager to see the prices in Taiwan rise, as the current prices simply allow no room for profit-making, complaining also, without explanation, that Taiwan Cement and Asia Cement intentionally suppress cement prices on the island.

Growth Assured
Despite plunging profitability for Taiwan's cement producers in the first half of this year, Taiwan Cement's Koo assures that domestic cement demand will grow 15% year-on-year in 2010, with the demand to peak in the fourth quarter as usual.

Quite optimistic about the prospects for Taiwan's cement industry in the fourth quarter of this year, Koo anticipates the power rationing in China to continue throughout this year, which will help sustain cement prices at comparatively high levels.

Also with the positive growth in public works projects and uptrend in building construction in Taiwan, Koo believes cement demand on the island will reach 12 million tons this year, up 15% from last year's 10.35 million.

Steady growth in Taiwan's cement market enabled Taiwan Cement to score sales of NT$14.539 billion in the first eight months of this year, up 4.63% from a year earlier.

Koo notes his company's profitability in China will rise in the second half of this year driven by rising cement prices, up over 20% in the markets of Guangdong, Guangxi and Fujian provinces in the third quarter of this year.

An institutional investor says Taiwan Cement's subsidiary in China has registered 115 million renminbi in after-tax earnings in the first half of this year, with second-half earnings to triple that of the first half to reach between 450 million and 500 million renminbi, fueled by the increase in production capacity and rise in average selling prices.

Earnings of Taiwan's Cement Makers in H1, 2010 Unit: NT$100 million
Firm	Operating Earnings	Non-core Business Earnings	Pre-tax Earnings
Taiwan Cement	1.4	30.92	29.88
Asia Cement	0.153	43.22	38.54
Chia Hsin Cement	-0.508	0.322	-1.66
Universal Cement	-0.56	5.08	4.26
Source: respective firms