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TimePosted 25/06/2018 12:19:00

Will Peru's market pick-up persist?

The Peruvian cement market continues to return an improved performance when compared with last year, according to the latest data published by Asocem, the country’s cement association. Between January and May 2018, domestic demand increased by three per cent YoY to 3.837Mt as Peru rebuilds its damaged infrastructure following El Niño.

The advancing market conditions are welcome news for the country’s cement producers as the second quarter of 2018 appears to provide more sustained growth after a tepid 2017 and 1Q18. In the first five months of 2018, they have been able to increase output levels to 3.956Mt of cement, up 2.1 per cent, and 3.244Mt of clinker, up 6.8 per cent, when compared with the 5M17, lifting hopes for a sustainable market recovery and strengthening company results.

In 1Q18 Unacem reported a 53 per cent fall in net profit to PEN157m as its sales slipped 0.6 per cent YoY to 1.199Mt. However, the company benefitted from a higher price realisation and saw its revenues increase by 1.1 per cent and its EBITDA by 15 per cent YoY.

Cementos Pacasmayo’s cement, concrete and blocks sales advanced by 7.8 per cent to PEN315.3m in 1Q18 from PEN279.5m in 1Q17. Net income increased by 37.3 per cent to PEN29.8m. “Pacasmayo registered a very solid performance in the first quarter of 2018, as we benefitted from an improved demand environment, allowing for operational efficiencies which resulted in strong margins. While we are seeing the positive effects of a stronger cement market, Pacasmayo’s results this quarter do not fully incorporate the benefits related to rebuilding our country’s damaged infrastructure after the Coastal El Niño, which we expect to see in the months ahead,” said the company in its report. Demand for the company’s products was particularly strong in the northern part of the country, where the company’s Piura plant increased its production by 24 per cent.

Expanding industry
The upturn in the market has raised expectations and some cement producers are planning capacity increases. Inversiones en Cemento (Invercem) plans the construction of production facilities in Pisco and Ayacucho, said its founder, Victor de la Torre. The Pisco works is expected to have a capacity of 0.22Mta while in Ayacucho, the company will add 0.45Mta of capacity. Futhermore, Invercem is also to invest US$18m into a 0.22Mta in Salaverry, Trujillo, where it currently runs a packing plant, reportedly importing cement from Anhui Conch Cement Co and HeidelbergCement. Mr De la Torre concluded equipment contracts in Spain at the end of May with installation scheduled for August. Currently only present in the north of Peru, the company plans to expand across the country.

In addition, a 0.5Mta expansion is currently under construction at Caliza Cemento Inca’s Chosica works while the company has also announced an extra 0.5Mta at Piura. Cal Y Cemento Sur is also expanding its Cesur plant by 0.33Mta of grinding capacity.

Price war looming?
However, the building of additional capacity and new entrants, particularly in the north of the country, has raised concerns about increased competition for existing players and the potential of a price war. At the end of May, the price of a bag of cement stood around PEN25 but Pacasmayo reduced its Mochica brand by PEN3/bag. Invercem’s CEM I product from Salaverry reported a price of PEN17.50/bag.

Meanwhile, looking ahead, the prospects remain positive with Peru’s central bank (BCR) expecting a five per cent rise in GDP for the second quarter. This economic growth and infrastructure works can be envisaged as a sound basis for sustained market expansion.


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