IRON & STONE

Ecuador 2014 | REAL ESTATE & CONSTRUCTION | REVIEW: CONSTRUCTION

The construction sector in Ecuador forms a vital part of the economy, providing the raw materials—literally the cement and steel—for key national infrastructure and development plans.

Construction in Ecuador is a sizable industry—cement production alone was estimated at over 6 million tons in 2012-2013—and is represented by numerous public and private companies involved in different operations related to the building, repairing, alteration or maintenance of residential, commercial, and industrial structures. In general, the construction industry in Ecuador is divided broadly into three segments: residential and non-residential buildings; heavy civil engineering projects such as work on bridges, roads, ports, or tunnels; and other more specialized construction-related activities, such as the production of clinker, an essential raw material. To meet the growing needs of the cement industry, Ecuador recently expanded its clinker production capacity at the Holcim Ecuador plant at Guayaquil. By commissioning a new cement mill in 2012, the Swiss multinational Holcim began the second phase of its cement plant modernization in December 2012, thus increasing clinker capacity to a projected 1.4 million tons annually by 2015. This second phase required an investment of nearly $400 million, and the construction of a third kiln at the plant is underway. This will allow Ecuador to sustain its growth in the coming decades, and will balance local clinker production capacity with local cement capacity, in order to eliminate the need to import clinker, and reduce transport costs and risks.

In terms of the cement industry in Ecuador, there are four plants and three private companies catering to the needs of over 15 million citizens. In 2007, during his first term, President Correa started to work directly on issues related to the integrated social development of the country, and a specific emphasis was put on projects related to infrastructure, roads, and other transport links. To achieve these goals, the country needed to be able to produce significant quantities of cement. With this problem, until 2012, the government attempted to increase production and to act in the market in order to supply enough cement for the economy's needs. Ecuador currently has a number of large-scale megaprojects in the works, and this is driving up demand for concrete, steel, and other construction materials. According to its own figures, the government is investing over $2 billion in future highway projects all across the country, which will link up a number of currently underserved areas while expanding existing roadways. Recent past investments in the highway system have totaled over $8 billion. The government has also planned or begun building 14 hydroelectric plants to be constructed in the next few years, with an overall investment amount over $7 billion. Two further projects that are relevant to the construction sector include the highly publicized Pacific Refinery, with a future allotted investment amount of over $13 billion, and the Pacific Shipyard, with a future investment amount of over $180 million.

CEMENT

There are two main private cement producers in Ecuador, which are also the two biggest producers in the world. One is Holcim, a Swiss multinational, and the other is Lafarge, a major concern from France. These two companies taken together have more or less an 80% market share. The state is also heavily involved in cement production. Manuel Román Moreno, General Manager of the Empresa Pública Cementera del Ecuador (a publically owned cement producer), describes the state role in cement and clinker production in this way: “The government has two companies. One of them is Cemento Chimborazo, and the other is Industrias Guapan. Previously, they were owned by different parts of the government, but we have now merged them together into the Empresa Publica Cementera del Ecuador (EPCE). This was because Cemento Chimborazo had a 5% market share and Guapan had a 7% market share; therefore, we decided to bring them together to make the company stronger." He went on to say, “we performed this merger in November 2013, and right now we are looking to make this company stronger with an investment of around $230 million to put in a brand new clinker line."

The Ecuadorean unit of the Holcim has announced that its Guayaquil plant expansion will help supply the country's domestic cement needs, and moreover the investment will generate about 2,500 direct and indirect jobs in the country during the construction phase, which should be fully completed by early 2015. The first phase of the expansion began in early 2010, with an investment of $120 million, and by completion of the project, Holcim Ecuador's cement capacity will grow to over 5.4 million tons per year. The German company Loesche is also involved in the Guayaquil plant, having delivered in late 2013 a new LM 56.4 type vertical roller mill for cement raw material grinding. The mill has a capacity of 386 tons per hour. The mill motor capacity will be 4,000 kW. It will complement an existing Loesche roller mill that has been operating at the same plant since 2010. Lafarge, the other major private cement producer, has announced the sale of its cement operations in Ecuador for a value of $553 million to Union Andina de Cementos (UNACEM) of Peru. Union Andina de Cementos (UNACEM), formerly Cementos Lima, is also engaged in the production of cement in Ecuador.

STEEL

Ecuador is South America's seventh-ranked steel producer, and has three steel companies: the 250,000 tons per year Acerias del Ecuador (Adelca), the 135,000 tons per year Acerias Nacionales del Ecuador (Andec), and Novacero which produces around 250,000 tons per year. Ecuadorean steelmakers Adelca, Andec and Novacero currently have a combined crude steel capacity of almost 700,000 tons per year. Ecuador's $1.1 billion annual steel industry imports about 800,000 tons each year to meet its average demand of about 1.2 million tons a year; most of this steel is used to provide infrastructure for the oil industry. In 2013, the Ecuadorean government began promoting the construction of a $1.4 billion steel mill to meet future domestic and export demand, as it has increased import tariffs on rebar and a number of other steel products, in a bid to protect its domestic industry from more competitively priced material from overseas. The steel mill, which would have capacity of 1.5 million tons per year, would take 15 years to build in two stages, Ecuador's national investment agency Preinversión said in a report posted on its website. Annual steel demand is slated to rise to 2 million tons by 2025, according to Preinversión figures. The Indian government is also eyeing opportunities to invest in manufacturing industries in Ecuador, including the steel sector, and negotiations were under way for Indian investment in 2014.

Crude steel output in Ecuador reached 323,000 tons by 2H2014, down by 4% compared with the corresponding period last year. Between January and August of 2013, Ecuadorean apparent steel consumption came to 995,000 tons, according to the latest figures from Latin American steel group Alacero. Increases in 2015 are expected, mainly due to rising demand from both the construction and infrastructure sectors. This growth in demand has contributed to lifting local consumption of steel products such as beams and bars. One shortcoming that has been noted is that despite the healthy steel demand conditions in Ecuador, domestic mills continue to rely on raw material imports such as ferrous scrap. Imports of ferrous scrap come mostly from neighboring countries in Latin America, but also from further afield in Asia. In the final analysis, the construction sector in Ecuador, driven by a number of major planned mega projects and a need for residential housing, is vibrant and in good health. Current investments and improvements are only deepening this trend.