Expansion in sight: Sector activity drives demand for cement

Cement producers have been trying to keep up with the pace of construction sector growth over the past few years. This is reflected in cement consumption, which increased by 3.72% in 2011, according to the National Institute of Statistics and Information. With a small group of companies covering the market, many opportunities await future investments.

As a perishable commodity, cement cannot remain in stock for long periods of time and its production must be matched by sales. Annual cement production amounted to nearly 8.4m tonnes in 2010, more than double its production in 2002, according to data from the Ministry of Housing, Construction and Sanitation (Ministerio de Vivienda, Construcción y Saneamiento, MVCS). In 2010 cement consumption was slightly higher than the level national production could supply, which led to a rise in imports.

PRICE STABILITY: Foreign trade figures over recent years are quite telling of the increased internal demand. While cement exports peaked at 674,325 tonnes in 2005, this figure quickly dropped over the course of four years to just 1851 tonnes in 2009 before regaining some ground in 2010 to reach 17,394 tonnes.

Prices, on the other hand, have remained extraordinarily level over the span of a decade. In April 2012, the cost per 42.5-kg bag of cement closed at PEN18.04 ($6.60). In January of 2002 the bag cost PEN17 ($6.20) with no significant dips or rises in between.

“Cement prices have been very stable over the past years with just a 2% rise. Even if construction picks up, the price is not very likely to increase,” Carlos Ugas Delgado, the CEO of producer Cementos Lima, told OBG.

The majority of cement is distributed in bags of 42.5 kg and the rest can be delivered in bulk. However, many companies are preparing to dispatch in bulk bags, which can hold up to 1.5 tonnes. These tactics will respond well to changing demand in the sector.

FINANCING GROWTH: The industry is propelled by a small number of companies, which include Cemento Andino, Cementos Lima, Cementos Pacasmayo, Cementos Yura, Cementos Selva and Cementos Sur. Despite few producers, the market is wide open as demand is expected to continue rising, meaning production will need to expand and firms are likely to innovate. One of the leading companies, Cementos Pacasmayo, made local headlines in February 2012 for raising $230m on the New York Stock Exchange, nearly 50% of which will be invested in their cement operations in Peru. The plans include expanding current operating plants and installing a new one in northern Piura, slated for 2016. Humberto Nadal, the company’s executive director, told local press that future expansion plans will increase its yearly capacity from 200,000 to 440,000 tonnes. The firm attracted investments from sectors as distant as retail, which placed stakes on the company’s plans.

DEMAND IS UP: Peruvians seem to want to make their mark in the regional cement industry as well. In 2009 Brescia Group bought one of Chile’s largest cement producers, Melón. After the February 2010 earthquake that destroyed much of Chile’s central-southern coastline, demand for cement skyrocketed.

The Association of Cement Producers reported that cement dispatches – one way of measuring the material’s consumption – reached 716,278 tonnes in January of 2012, accounting for 11.35% more than what was registered for the same month in 2011 (643,267 tonnes). These figures include both internal consumption and exports, which, despite representing much less of the production scheme, also rose to 11,773 tonnes in January, an increase of 99.74% year-on-year.

Prices have not fluctuated much for cement, but if demand continues to increase as it has been and companies do not quickly expand operations, prices could shoot up. However, this situation seems unlikely as the majority of sector professionals recognise the importance of cement for the construction industry, which in itself makes a vital contribution to the country’s economy. The government is also aware of this and will continue to promote construction, suggesting that cement production will not dry up any time soon.

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The Report: Peru 2012

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