Peruvian building materials companies should follow a positive trend through 2019, Moody's Investors Service affirmed in its latest report.
"(...) the pipeline for main
private projects through 2019 is sizable at around US$19 billion, and the country's Central Bank forecasts 13% growth in public investment in 2018 and 5% in 2019," it expressed.
"The
construction sector has rebounded and grown sustainably amid surging economic growth since mid-2018, except for a dip in March 2018 based on the uncertainties of the presidential resignation process," Moody's indicated.
Construction's benefit to building materials companies has been modest but should begin to spill over and accelerate in the second half of 2018, it forecasted.
Although closely linked with construction activity, Peruvian cement producers rely heavily on self-construction, marketing cement as a consumer product and not a material.
According to Moody's, Peru's main producers —
Union Andina de Cementos (Unacem, Ba2 stable) and
Pacasmayo— sell more than half of their cement to individual consumers, so stable internal demand allowed both companies to withstand a weak heavy-construction sector in recent years.
Still, certain ongoing projects will benefit cement producers, as will an improving homebuilding sector based on a
stronger consumer environment and increased federal efforts to help low-income workers get mortgage loans.
Big development ventures —such as
Mina Justa and the
Toromocho expansion— will provide opportunities for building materials companies throughout Peru.
Some large public projects have begun to proceed in central Peru for the Pan American Games and
Lima's Metro Line 2 after a subdued 2015-17, while other regional projects have won concessions, including improvements at Salaverry and Pisco ports.
It went on to add the market leader in central Peru —Unacem— should improve its cash generation in the second half of 2018, allowing it to de-lever to close to 3.0x by the end of 2019, down from 3.6x as of March 2018.
In the aftermath of Coastal El Niño floods, the government approved a roughly S/26 billion ($8 billion) reconstruction plan in 2017. But a lack of coordination among federal and local authorities —primarily in northern Peru— has caused delays, and only around 10% of the budget has been spent so far.
If effective, the change will be positive for the sector, mainly for Pacasmayo, the largest cement company in the north.
But even if delays continue, private reconstruction efforts will keep boosting performance for Pacasmayo, whose revenues grew by 12.8% in the first quarter of 2018, it concluded.