Freight Transport Growth Driven By Mining Sector
As a globally significant exporter of several base and precious metals, growth in Peru's freight transport sector is in large part predicated upon the continued growth of the country's mining sector. As our mining team is confident that the sector will grow steadily over our medium-term forecast period, from 2013 to 2017, we are equally confident that volumes transported upon the country's freight transport network will also increase over the coming five years, and beyond.
The growth in the mining sector - the value of which we project will hit US$24.17bn in 2017 following an annual average (nominal) growth rate of 5.2% between now and then - will be driven primarily by investment into copper and gold mining projects. While we acknowledge that gold mining in itself does not generate huge volumes for transporting, this investment will contribute to the growth in Peru's economy; we forecast that real GDP growth will be 5.4% in 2013 (down slightly from 6.3% in 2012), and average 5.2% to the end of our forecast period.
|Digging A Brighter Future|
|Peru's Mining Industry Value, 2008-2017 (US$bn)|
The increased wealth in Peru from the continued growth of the mining sector and the wider economy will see an attendant growth in private consumption in the country as the consumer power of the growing middle classes increases. In 2013 we forecast that this will grow by 5.8%, outpacing real GDP growth, and over the medium term we believe that this growth will continue, averaging 5.3% a year.
However, the continued risk of a hard landing in China, should the country's economic rebalancing lead to a dramatic crash in economic growth, as opposed to the slowdown in growth we already see taking place, offers risk of a significant upset to our forecasts. Our outlook for Peru's economic growth, and on growth in its freight transport volumes, is predicated on the assumption that China continues to import Peruvian commodities.
This growth in private consumption will feed demand for containerised consumer goods, thereby fuelling growth in intermodal volumes. This affects container port throughput, rail freight volumes, and road freight volumes. While we do not forecast road freight volumes in Peru, owing to a scarcity of data, we believe that, as the key transport mode in the country, it will see strong growth in the coming years as it is exposed to both the growing demand for intermodal volumes and the burgeoning mining sector, and that industry's generation of large volumes.
One key development that will see road haulage increase still further is the ongoing investment being made in new roads, in particular the inter-oceanic highway, completed in 2011, which links the Atlantic and Pacific oceans. It is hoped that the highway will open up transit trade through Peru, enabling its giant neighbour Brazil to export to China without having to transport goods by ship either around the Cape or around southern Africa. However, Brazil's exports to China and Asia are driven by iron ore, which benefits hugely from the economies of scale presented by transporting the commodity in huge ships such as the Valemaxes (though China is yet to acquiesce to these mega-vessels calling directly at its ports). Equally, China's exports of manufactured goods to Brazil take advantage of the same economies of scale in container ships, and so it remains to be seen just how attractive the highway will ultimately be to shippers.
Perhaps the freight transport mode that is most exposed to private consumption growth is air freight. The sector has traditionally transported high-value goods owing to the large cost of transporting goods by airplane - the economies of scale are not there as they are on trains or ships, and the transport mode certainly does not share road haulage's cost benefits. Goods transported by air freight include electronics (though there has been a noted move in the transport of electronic goods from air freight to ships in recent years, as the reliability of sea transport has increased), pharmaceuticals and floriculture and fruit. These last three benefit from both the speedy transport offered by air freight, and the ready option of temperature-controlled facilities.
|Jorge Chávez Airport Air Freight Tonnes, 2008-2017 ('000)|
In 2013 we forecast that Peru's air freight volumes will expand by 7.5%, following 2012's estimated growth of 9.2%. As an indicator for the sector we use the country's primary air freight facility of Jorge Chávez Airport at Lima, the Peruvian capital; if our estimates and forecasts are borne out, this would see 288,000 tonnes handled at the facility by year-end. Over the medium term to 2017 we project that growth will average a robust 7.8% a year. In terms of freight tonne-km for Peru as a whole, we forecast growth of 11.2% in 2013, and an average growth rate of 10.9% over the forecast period.
Growth at the Lima airport will be aided over the medium term by the fact that the facility is majority-controlled by Fraport, the operator of Frankfurt Airport, a major global air freight hub. Having a major international player involved can bring much needed expertise in developing a terminal's attractiveness as a transhipment facility, thereby increasing volumes.
In 2013 we forecast that Peru's rail freight tonne-km will grow by 3.1%, to 1.35mn freight tonne-km. If realised this would mark a slowdown from our estimated growth rate in 2012 - 6.2%. To 2017 we project that growth will average 3.6% per year, rising to 1.57mn freight tonne-km by 2017.
|Volumes Climbing Over Medium Term|
|Peru Rail Freight Tonnes 2008-2017 ('000),|
As noted above, growth in Peru's rail freight volumes will be led by the ever-expanding mining sector, with the increasing volumes of extracted commodities largely borne by rail freight - in particular copper concentrates. However, there are other goods, earmarked for domestic use rather than exports, which will also lead to growth in Peru's rail freight volumes. According to PeruRail Cargo, which operates a bimodal (freight train and truck) cargo service in Peru, the company also transports large volumes of coal, which can be used to supply Peru's growing need for power, fuel transport, for which it has 78 tanker cars in its fleet, and wheat.
Over the longer term there is a chance that, like road haulage volumes, growth in Peruvian rail freight volumes will be boosted by a transcontinental railway line, in line with the country's aim to develop itself into Latin America's 'gateway to Asia'.
BMI believes that the Peruvian ports sector will enjoy a continued growth in throughput volumes over the course of our medium term forecast, in terms of both box throughput and total tonnage volumes. The growth in container handling at the Latin American country's ports will be led by the growing power of the Peruvian consumer, as noted above. This trend has already been noticed by international terminal operators with leading company APM Terminals having won the concession to develop the container-handling facilities at the port of Callao in 2011.
|Strong Growth, Though Risks Abound|
|Port of Callao Throughput Tonnes, 2008-2017 ('000)|
It is the continued growth of the country's mining sector that will contribute the bulk of the growth in total tonnage volumes through Peru's maritime facilities, however, with volumes at Callao forecast to grow by 5.2% in 2013, to 20.37mn tonnes, and to record an average annual growth rate of 7.6% a year to 2017. The port of San Martin will see growth average 9.1% over the same period, rising to 2.53mn tonnes.
There is risk to this outlook from the ongoing potential of a hard landing in China, as there is to all of our forecasts concerning Peru. Equally, however, there is upside risk; should the transcontinental transport projects noted above become the backbone of Latin American trade, then a significant boost to volumes in Peru's ports could be generated.