Industry Trend Analysis - Gas Pipeline Construction Delay To Weigh On CV Demand - MAY 2017

BMI View : A delay in the construction of Peru ' s largest infrastructure project will weigh on demand for commercial vehicles, particularly heavy trucks. As a result, we have downgraded our commercial vehicle sales forecasts for 2017 to growth of 1.2% in 2017, down from previously forecast growth of 2.0%.

We expect a delay in the construction of Peru's largest infrastructure project - the USD7.0bn Southern Peruvian Gas Pipeline - to weigh on demand for commercial vehicles (CVs) in 2017. As a result, we are revising down our CV sales forecast to growth of 1.2% in 2017, down from previously forecast growth of 2.0%.

Construction Growth Downgrade Will Weigh On CV Sales
Peru - Commercial Vehicle Sales, Units
e/f = BMI estimate/forecast. Source: National sources, BMI

Our weaker outlook for Peru's CV segment follows on from our Infrastructure team's view that the country's construction and infrastructure industries will face major headwinds stemming from the cancellation of the contract for the construction of the Southern Peruvian Gas pipeline. As a result, we believe that the value of Peru's oil and gas infrastructure industry will contract by 44% in real terms in 2017.

This will in-turn weigh heavily on overall construction industry growth, which is forecast to expand just 0.2% in the year ahead, down from a previous forecast of a 3.7% increase ( see ' 2017 Construction Growth Revised Down With GSP Delay ' , January 30 2017). We believe that this more downbeat outlook for Peru's construction industry will weigh on heavy truck demand in particular, as they are more suited to meet the logistical requirement of heavy industries such as oil and gas, which will then drag on overall CV sales.

GSP Delay Will Weigh On 2017 Growth
Peru - Construction And Oil And Gas Pipelines Infrastructure Industry Value Real Growth % y-o-y
e/f = estimate/forecast. Source: BCRP, BMI

Strengthening Currency A Boon For CV Importers

That said, we believe that a strengthening Peruvian sol will bode well for CV importers in the country by helping to ease vehicle import costs. Our Country Risk team forecasts the sol to average PEN3.30/USD in 2017, up from PEN3.38/USD in 2016, representing an average appreciation of 2.2% over the year. With the majority of Peru's vehicle imports coming from the US - 21.5% in 2015- we believe a positive outlook for the nation's currency will be a boon for businesses reliant on CV imports.