Shemberg embarks on P100-M expansion program

MANDAUE CITY, Cebu –Tough times call for tough decisions. In the last year, while other seaweed processors have chosen to downscale their operations due to escalating fuel costs, Shemberg Marketing Corp. (Shemberg), the world’s biggest carrageenan producer and exporter, took a different and risky route.

It embarked on a P100-million expansion program in mid-2004 that included retooling its facilities and replacing its bunker-guzzling boilers with cheaper indigenous fuel alternatives.

By end of this month or early February, Shemberg expects to complete the installation of four new boilers that could run on coal or coconut shells.

The new boilers, all imported from China will be installed in its four seaweed processing plants in Cebu and Zamboanga City in Mindanao.

"We have already been considering retooling since the start of 2005 when fuel costs started to go up and went on relentlessly. The way we saw it, the uptrend in fuel prices was not going to be reversed in the near term. We had to convert to other cheaper fuel sources if we were to survive and keep our competitive edge," explained Shemberg’s president and chief executive officer Benson Dakay.

The unprecedented rise in oil prices continues to threaten the viability of export industries like the processed seaweed industry with higher fuel costs increasing producers’ cost of transporting raw materials and producing processed seaweed.

Dakay said that at the start of 2005, its four processing plants, all running on bunker fuel was costing the company about P363,000 daily at the average bunker fuel price of P11 per liter. By October at the average cost of P22 per liter, the cost had soared to about P726,000 per day.

With higher fuel costs, production cost increased to $3 from $1 per kilo for refined carrageenan, and to $1.50 from $0.50 for semi-refined carrageenan.

An added burden to processors is higher freight costs. The cost of domestic freight is now 10 percent higher while the cost of shipping to its customers like Australia is now about $4,500 per container from only $800 last year. On the other hand, freight costs to the United States also went up to $4,000 from $2,000 per container.

As a result, Dakay said seaweed processors are struggling to stay afloat.

Most seaweed processors use either bunker fuel or diesel in their operations and the rising prices of oil have adverse effects on the entire industry, stressed Dakay.

"There was only one option for us, and that was to retool, we could not continue absorbing the high cost of fuel," said Dakay.

By using coco shells for its energy requirements, Shemberg will now be able to run all of its plants at substantially lower costs. Dakay estimates that the average converted fuel will cost only P6 per liter and will translate into daily savings of P528,000.

"The savings we will be generating not only reduces our costs but also restores our competitive edge in the world market. It makes our production cost more manageable," said Dakay.

There are other socio-economic benefits in shifting to coco shells for the company’s energy requirements. For one, the coco shells, which were previously just discarded as waste or garbage, are now being gathered by farmers, providing them with additional income. When all four plants are fully operational, Shemberg would be needing about 120,000 kilos of coco shells per day.

Using coco shells is also more environment-friendly. There are no ozone-depleting annoying soot and smoke emitting from the smoke stacks with the new process.

The company’s fuel mitigation measures should work out well for the company.

"We had to adjust to the situation and think about the long-term viability of the industry if fuel prices continue to rise. We cannot compromise our competitiveness by passing on our added costs to our buyers," stressed Dakay.

With more-efficiently run boilers, Shemberg is in a better position to keep pace with the growing demand of its traditional and emerging new markets.

Dakay, whose company last year exported $38.6 million out of the country’s total carrageenan exports of $144 million is confident that its expansion program will enable it to increase its export revenue by 10 percent in 2006.

"We are moving toward really improving our refined carrageenan production capability and coming up with gel press-based refined carrageenan products which enjoys a premium of $9 to $10 per kilo compared to semi-refined carrageenan which is now averaging just $6 per kilo," said Dakay.

Shemberg will double its refined carrageenan capacity to 1,600 metric tons (MT) in 2006 from last year’s 800 MT. It is also projecting to raise refined carrageenan exports this year to 1,200 MT from 2004’s 800 MT.

On the other hand, semi-refined carrageenan exports will be increased to 8,000 MT from 7,000 MT.

Dakay said it will also be embarking on a more aggressive marketing strategy to increase its share of its major markets, particularly the US and the European Union (EU).

At the same time, the company will also be exploring new emerging markets, including China.