Peru Shipping Report Q1 2012

While we forecast Perus real GDP growth to slow, we expect growth to remain strong, and have revised up our GDP forecasts to 5.8% in 2012, from a previous 4.9%. We believe President Ollanta Humala will pursue pro-growth policies that will support private consumption, compensating for a deterioration of external demand for the countrys exports in 2012.

We expect a slight slowdown in 2012 on the back of weaker global demand for Perus minerals and moderating global commodity prices, which will drag on the countrys exports. That said, we believe Humala is likely to implement pro-growth policies which will translate into stronger public consumption. In turn, we expect feed through into stronger private consumption through social transfers and higher capital expenditure, which will support growth in the coming quarters.

While public expenditure should pick up, we still see private consumption being the main driver of growth as incomes rise and consumer credit becomes more widespread, boosting import volumes at the countrys ports. Private consumption grew by 6.4% year-on-year (y-o-y) in Q211 and added 4.3pp to the headline growth rate over the same period. Thus, consumers do not seem to have been significantly impacted by the decline in government spending in Q211. Furthermore, we see strong potential for additional growth in private consumption 2011 and 2012 as Humala focuses on boosting the disposable income of the poorest segments of Peruvian society.

Headline Industry Data

- We are projecting box traffic at Callao to grow 9.5% in 2012 to 1.1mn twenty-foot equivalent units (TEUs).

- We expect growth of 8.6% in total tonnage throughput at Callao to 20.1mn tonnes.

Key Industry Trends

Future Looks Bright For Peruvian Ports As They Position Themselves As Gateway To Asia

BMI notes upside risk to our forecasts for the Peruvian port of General San Martín, due to the governments announcement that it will concession the port before the end of 2011. BMI believes the port is well placed to take advantage of Asian demand for Perus natural resources, particularly copper, and as such we expect the concession to attract plenty of international interest.

Peru Aims To Close Port Investment Gap, Improvement Needed Across Freight Transport Sector

BMI maintains its view that Peru is well placed to position itself as a gateway to Asia for Latin American exports. However, we caution that efforts to do so may be stymied by the lack of investment in infrastructure. It seems the government is now trying to close the gap in funding to improve competitiveness and efficiency, with a US$2bn investment in the port sector. The news bolsters our view that Peru has the potential to become a regional logistics centre, providing strong growth opportunities for shippers and shipping lines.

Key Risks To Outlook

BMI believes risks to our Peruvian port and shipping forecasts are mainly on the upside, with increased private consumption possibly leading to greater demand for containerised goods. Despite concerns during the presidential campaign, we expect consumption to benefit from Humalas economic policies. Humalas new economic plan does not include increasing taxes on consumers; in fact, the president will seek to reduce VAT in the coming years, supporting consumer demand.

Downside risks come in the form of a possible slowdown in Chinese demand, which would hit shipments of copper and other raw materials from Peru.

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