According to analyst Ms María Teresa Sarmiento with bank BCP in Lima, growing competition from imports in Peru's steel sector mean traditional steelmakers Aceros Arequipa and Siderperú will have to prioritize investment in expansion and efficiency to keep up.

Ms Sarmiento told BNamericas that "Much more efficient competitors have entered the market here through imports."

She added that weak demand in other parts of the world combined with Peru’s construction boom has made the country an attractive home base for importers.

With imports have come lower prices on the domestic scene, though input costs for steelmakers in Peru have not fallen, meaning margins are under pressure.

Ms Sarmiento said that Aceros Arequipa is already on its way to finishing a rolling expansion but will also need to increase steelmaking capacity at some point.

Siderperú announced in September 2012 plans for a USD 253 million expansion but also must bring its mothballed blast furnace back on line to stay in the game.

BCP's base case valuation of 0.82 soles for the company assumes a 100% probability that the furnace will restart by 2016. Assuming a 0% probability, the bank's valuation falls to 0.49 soles.

Both firms are currently producing all their steel at electric arc furnaces which rely on scrap metal.

Source - Business News Americas

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