Growth Expectations for the Construction Sector in the Fourth Quarter of 2019 Are Lower.
By Mauro Nogarin
The latest economic-financial report published by the Central Bank of Peru (BCRP), indicates that gross investment reached 22.7% of GDP in 2019, that is to say the same level of the previous year, also emphasizing that the BCRP has reduced its previous estimate made in March 2019 at 30 basis points.
Note that 80% of this investment is due to the private sector. The fall in the construction sector recorded in May – the third in the last nine months – reflects the difficulties it has in consolidating a process of recovery of the construction activity initiated in 2017. The main difficulty of the public sector is the execution of investment budgets.
The same trend was confirmed by the National Statistics Institute (INEI) where growth expectations for the construction sector in the fourth quarter of 2019 are lower because the companies’ operations registered an increase of 4.75% in the fourth quarter of the 2019, compared to the same period of 2018, which shows activity of less than 5.44%.
Infrastructure builders presented the largest gap between what they expected (+ 7.36%) and what they achieved (+ 3.95%). Finally, for the fourth quarter of 2019, companies expect to obtain a slightly lower result than the one achieved in the third with 4.68%.
With the difficulties generated by the current political situation, as indicated by the Institute of Economy and Business Development (IEDEP) of the Chamber of Commerce of Lima (CCL), the recovery of public investment during this year will represent a boost for the construction sector, reaching an expansion of 4.1% at the end of 2019 and 6.5% in 2020.
According to the statistics prepared by the Association of Cement Producers (ASOCEM), in the last 12 months the dispatch of cement in the domestic market reached an accumulated of 10,404,000 metric tons (Mt), thus registering an increase of 4.2% with respect to the same period of the previous month of the previous year.
This result was associated with the continuity of private sector construction works in the mining sector, shopping centers, multifamily and commercial buildings.
National cement consumption considers national shipments and adjusted imports of small businesses. In September, the former accounted for 1,020,000 tons, while imports amounted to 15,000 tons.
This is the third highest growth rate so far this year, after May (7.7%) and July (11%). In the last 12 months (October 2018 - September 2019), cement consumption totaled 11,629,000 tons, 4.8% more than the consumption of the same period a year ago (October 2017 - September 2018).
In the last 12 months in terms of cement and clinker exports, registered by ASOCEM, they reached an accumulated of 207,000, Mt, thus registering a decrease of 34% and 730,000 Mt (-25%), respectively. These volumes refer to the tonnage accumulated between the month of October 2018 and September 2019. As for cement and clinker imports in the last 12 months they reached an accumulated of 890,000 Mt registering an increase of 4.9% and 704,000 Mt (5.5%) respectively.
On the other hand, the price of cement did not show any variation in the last 12 months. In relation to December 2009 (base period), the price of this construction material has accumulated an increase of 31.0%, ranking third among the main inputs of the construction that registers a greater increase since then.
The main cement companies such as Unacem, Yura Cementos and Pacasmayos, which together hold approximately 85.5% of the national market (Class & Associates report), UNACEM reported in the second quarter of 2019 a cement production of 1.3 million tons, 8.8% higher figure compared to the same period of the previous year. While the clinker production of UNACEM during 2Q19 totaled 1.5 million tons, a figure 4.4% higher than the production achieved in 2Q18.
The latest report of clinker production indicates that the third quarter of 2019 was 405,721 Mt, 126.6% higher than the same period last year (179,035 Mt). The increase is mainly explained by a stoppage, and maintenance issues in the main oven the previous year.
Regarding cement production registered during the third quarter of 2019, it reports that it was 703,900 Mt, 2.1% higher than the same period of the previous year (689,471 Mt). The increase is mainly explained by a greater demand in the domestic market.
According to the most recent report, third quarter of 2019, the volume of cement, concrete and prefabricated sales increased by 17.6%, mainly due to an increase in cement sales to the public sector for expenses related to reconstruction by El Niño; some private infrastructure projects; as well as in the self-construction segment.