Increased investment in Peru infrastructure boosts materials sales

In 2015 the Association for the Promotion of National Infrastructure (Asociación para el Fomento de la Infraestructura Nacional, AFIN) presented the “National Infrastructure Plan 2016-25”. Prepared for AFIN by the Universidad del Pacifico, it determined Peru would require $160bn to address existing infrastructure gaps in transport, energy, telecommunications, water and sanitation, among others. When former President Pedro Pablo Kuczynski’s government took office in 2016, it pushed for an increase in public infrastructure, leading to a correlating rise in the consumption of construction materials, specifically cement, as analysed by the Peruvian Chamber of Construction (Cámara Peruana de la Construcción, CAPECO). However, it was not until later, in June 2017, when GDP saw a positive turn for public infrastructure progress and construction materials.

CONSUMPTION

By the end of 2017 all three primary construction materials – asphalt, cement and steel – saw an increase in domestic usage, with the most pronounced growth being asphalt at 22.4%, as compared to the losses of 6.18% and 15.52% in 2016 and 2015, respectively. The end of 2017 also saw a historic rate of consumption for asphalt reached, at 619,260 tonnes. According to the Ministry of Transport and Communications, asphalt’s growth is directly related to the development and repair of public infrastructure, considering that El Niño Costero damaged an estimated 18% of Peru’s road network. The increase experienced by cement and steel was more conservative, increasing by 0.26% and 2.35% for the same period, respectively. As construction increased, so too did the percentage (2.3%) of capital goods imported into Peru, of which 35.9% were construction materials, although not all construction materials come from formal sources. According to CAPECO, 16% of construction materials are forged – equivalent to a value of approximately $700m annually. The rate of consumption may reflect the informal business of forged materials utilised in formal constructions, although these are most commonly used in self-construction. In a CAPECO 2013 perception study on informal construction for families who were self-constructing, the primary reason they chose to purchase products from an informal establishment was financial. While results may not reflect larger enterprises’ perceptions, the financial component continues to be an incentive for informality.

Materials Prices

The National Institute of Computing and Statistics (Instituto Nacional de Estadística e Informática, INEI)’s Construction Materials Price Index (IPMC) shows stagnating prices between 2013 and 2018. Prior to 2013, there was a fluctuation in prices due to the 2008 financial crisis, large investments in the construction sector and an increase followed by a decline in commodity prices. When comparing prices of different types of materials, floor tiles had the highest growth in price, reaching 8.17% by the end of 2017 compared to 2016. Cement followed with a 5.2% increase for the same period, with steel and brick at 0.53% and 0.94%, respectively. INEI’s January 2018 IPMC outlined cumulative growth of 1.74% over the year prior.

Copper

Although not a primary construction material, copper is used for electromechanical construction elements and is a profitable metal for Peru. As international metal prices rise – 31% in 2017 – Peru is well positioned as the producer of 7% of the world’s copper stock. From 2016 to 2017 there was a 44% price increase in copper from $1.94 per pound to $2.79. The price increase is associated with a higher investment in mining, however, international demand decreased, in contradistinction to the previous year’s record but in line with the moderately decreasing demands of one of Peru’s largest copper clients, China. That said, China is expected to post moderate growth through the end of 2018, and so the copper price is anticipated to reach $2.90 per pound. This estimate is also influenced by the expected materialisation of projects in other countries of interest, such as Peru itself, Chile, Democratic Republic of the Congo, Zambia and Panama.