Peru: cement consumption climbs on infrastructure projects
This week, CemNet reported that Peru's cement market had grown substantially by 6.5 per cent in September, according to Asocem, the Peruvian cement association. This was the fifth set of figures in 2019 when the monthly growth rate has been above five per cent. Demand growth was particularly strong in May (7.7 per cent), June (5.1 per cent), July (11.0 per cent) and August (6.3 per cent), although the market has shown to be robust in every month in 2019, from a stable start in January. Consumption over the last 12 months to September reached 11.63Mt, up 4.8 per cent YoY.
Peru is also providing consistent GDP growth, averaging YoY growth of four per cent for 2018-22, according to IMF forecasts.
Infrastructure as key driver
The sustained growth in cement demand comes is supported by a considerable rise in construction activity, which is set to continue. The value of the Peruvian construction industry is projected to rise from US$28.7bn in 2018 to US$36.6bn in 2023, according to GlobalData. An annual growth of five per cent between 2019-23 is also forecast. Much of this growth is expected to come from the infrastructure sector. The latest indicators are that Peru has currently 52 infrastructure projects underway, representing a value of US$30bn, to be invested between now and 2025.
"By 2025, 95 per cent of these plans will be complete," President Martín Vizcarra said in September 2019. The infrastructure programme will include transmission lines for the northern regions of Tumbes and Piura, as well as Proregión regional programmes for 15,000km of paved highways to link national routes with regional roads and port improvements in Paita, Chancay and San Martín.
In addition, the country aims to update its airports with new terminal improvements for Piura on the north coast and for the airports serving Yurimaguas and Chachapoyas, as well as upgrades to Chimbote and Huánuco airports. The newest and most controversial project is to build Chinchero International Airport in the Sacred Valley, in close proximity to the ancient site of Machu Picchu to drive tourism up by some 5m additional visitors a year. The US$30m Chinchero International Airport is being built by a South Korean company called Korean Airports Corp.
Water projects will also raise cement demand with the Chavimochic III irrigation project in La Libertad region and the Siguas Majes and Vilavilani water projects in Arequipa and Tacna, respectively.
Peru's infrastructure deficit stands at PEN369bn (US$109.7bn), or almost half of GDP, said Carlos Oliva, Peru’s economy minister. The project management office (PMO) will oversee and support most of these infrastructure projects, but the state is looking for overseas experts to help infrastructure planning, design and structural execution.
Housing potential
In addition, Peru's housing demand also provides opportunities for the cement industry. The country's housing stock is consistently reported as being short of national requirements, exacerbated by the country's location in a prime earthquake zone. The number of homes that would collapse in an earthquake of magnitude 8.5 has been estimated at more than half-a-million, claims Peru Reports.
Furthermore, the Peruvians' preference to leave rural areas to live in coastal cities in recent decades, combined with a lack of urban planning, has led to a sprawl of informal dwellings on city outskirts. To address the shortage of suitable housing, national initiatives have been launched.
For example, the Swisscontact 'safe, healthy and sustainable construction-project' aims to develop 5000 safer houses and provide informal sector construction workers' with high-quality training. It is also raising awareness of the risk of poor construction for 15,000 home owners.
Expanding cement industry
All this is good news for the cement sector, which is seeing margins raised with increasing demand. Market leader Unión Andina de Cementos SAA (Unacem) saw its 1H19 market share rise to 47.3 per cent from 45.6 per cent in 1H18, while its cement output rose by 8.8 per cent to 1.322Mt in 2Q19.
New capacity is also planned with Unacem adding 0.75Mta with its Cempor greenfield cement plant in Lima. Caliza Cemento Inca SA is expanding its Chosica cement plant by 0.5Mta, while Inversiones en Cemento SA (Invercem) is adding new grinding capacity of 0.5Mta and 0.25Mta at Ayacucho and Trujillo, respectively.
The cement sector could also be shaken up if Cementos Argos goes ahead with its plan to enter the market with a 1.6Mta integrated cement plant in Carabaya, in the next couple of years.
