There are few better barometers of economic activity than cement. Sales figures for Cementos Lima, which has had more than 40% of the Peruvian market for the last decade, tell a clear story about the ups and downs of the country’s economy during that time.

During the boom years of the early-mid 1990s, annual cement sales went from around 800,000 tons to two million tons in 1998, recalls Alvaro Morales, Cementos Lima’s CFO. Then came the country’s slide into recession and a consequent dip in sales. In 2001, domestic sales fell again, reaching perhaps 1.4 million metric tons.

Now the company, which listed its shares on the New York Stock Exchange as ADRs in 1994, believes the local economy has turned a corner. “We are expecting a strong expansion of the local market,” says Morales, conservatively estimating 4% growth this year.

Aside from the general economic recovery, there are specific reasons why construction should rebound. Prime Minister Roberto Dañino says the Toledo administration is pledging construction of 400,000 low-cost homes over five years through its ‘Mivivienda’ mortgage guarantee fund. Another scheme, ‘Mibarrio’ is to provide even cheaper housing, as the government seeks to address a housing deficit estimated at 1.4 million homes in Lima alone.

“We think there is a big interest in lifting the economy through construction,” says Morales. However, few huge new infrastructure projects that would be big customers are currently in the pipeline. Also Morales says there are 7,000 unsold luxury apartments at the upper end of the housing market.

Growth Expected
According to Banco Wiese Sudameris, per capita cement consumption in Peru lags far behind levels in Latin America’s larger economies. However, the bank does expect the construction sector to grow by more than 7% in 2002, rebounding from a contraction of around 8% in 2001.

While awaiting economic revival in Peru, however, Cementos Lima has not been idle, achieving fixed cost savings of $3 million annually since 1998 and launching aggressively into exports since 1999. Sales have been to the US, Honduras, the Dominican Republic and Chile. “Last year we gave [exports] a lot of emphasis,” says Jacqueline Salem, of the company’s corporate development team. Exports in 2001 were 400,000 metric tons and this year the company foresees another 500,000 metric tons of exports. Overseas sales will always be marginal but they are a good way of using spare capacity. Morales says the company operates at 46% capacity.

Underlining its commitment to further exports, Cementos Lima is building a nine-kilometer underground conveyor belt to carry material from its plant to its private pier at the port of Conchán, south of Lima – a $24 million investment. It is investing a further $20 million in an aerial cable-transport system to slash the distance and the cost of bringing raw materials from a chalk quarry to the plant.

Easy Financing
As one of Peru’s small clutch of blue-chip companies, Cementos Lima is finding that financing terms for such investments are more favorable than ever. Banks awash with liquidity and with few creditworthy customers are falling over themselves to lend. “We are taking advantage of the moment. Local spreads have gone down tremendously. There is lots of liquidity and very few qualified clients. It is a good moment to get ahead with all the projects we have,” Morales explains.

Also in the pipeline for Cementos Lima and a group of partners is a much larger project known as El Platanal. This is a $340 million scheme to build a dam and 260 megawatt hydroelectric power plant 150 kilometers south of Lima. The water would irrigate 27,000 hectares of land, creating 5,500 jobs. Some 30% of the energy produced will supply Cementos Lima and sister company Cemento Andino, which together are Peru’s biggest users of energy.

El Platanal has been four years in the making, a victim of the political uncertainty during that time. But Morales says the project partners hope to start construction by September and are working on financing the project. This could be through a syndicated loan led by Corporación Andina de Fomento, the regional development bank, with trade financing for imports of capital goods, in addition to local bank financing. “There is an excess of resources, few projects and low rates. It is a good moment to tap the local markets,” says Morales.