Peru a Key Market for International Heavy Equipment Brands: Opportunity for Used Equipment Sales, Too?

Heavy Stakes for Heavy Equipment Brands

Peru is one of the world’s leading markets for commodities and natural resource mining. But despite a global decrease in mining projects, the Engineering and Mining Journal notes in their August 2014 Global Business Report: Mining in Peru that Peru remains a key and growing market for heavy equipment sales. Mining equipment sales in Peru continue to be dominated by heavy-duty mining trucks, like CAT 797, double boomers, roof bolters, borers, like the SBM 400 SR, and other jumbo machines.

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Not surprisingly, CAT is Peru’s main-player with estimated 20,000 – 25,000 units of heavy equipment and machinery in operation, says COO of Ferreyros Gonzalo Diaz Pro. In 2013 alone, Ferreyros sold $180 million worth of Bucyrus products, acquired in 2011 by CAT in an $8.8 billion merger, like hydraulic shovels and giant electric rope shovels.

Although there is a steady/growing market for mining and construction equipment in Peru, it is unclear whether (or how much) this includes used equipment sales.

Diversification is Key

But we aren’t just looking at heavy equipment specific to mining; general construction equipment like compactors, trucks and excavators play a major role in heavy equipment sales in Peru. For brands like CAT, diversification is key and Ferreyros, Peruvian CAT dealer since 1942, notes a one-stop-shop strategy toward equipment sold. Peru also represents the largest market worldwide for Volvo’s FMX truck— proof that on-road truck manufacturers are further diversifying by moving into the off-road space.

Challenges

Although CAT mining equipment is the big leader in Peru, it is not the only player on the construction equipment side. Komatsu, Volvo, and Sany of China are all vying for market share in an industry and country known for its challenges. These obstacles include everything from quality of products, service options in remote locations, high-altitude terrain and fuel quality, says Diaz Pro, COO of Ferreyros.

And there he has a point: with the United Nations Environment Programme’s re-launch of the Partnership for Clean Fuel & Vehicles (PCFV) in 2012, increasing pressure has been mounted against countries that fail to meet certain fuel standards.

The PCFV projects aims to tackle sulfur levels in diesel fuels to under 50 ppm worldwide. This poses major problems for developing and transitioning nations, which often have insufficient technologies to improve refinement processes or inconsistent access to quality fuels. The very same countries often also lack well-developed local manufacturing of heavy equipment. That makes developing/transitioning nations, like Peru, dependent on developed nations for heavy equipment import.

The problem there? Developed nations, where sulfur levels are between 10 and 15ppm, are obliged to build equipment that meets the higher PCFV standards, making export to developing and transitioning nations increasingly difficult.

At the very least, as in Peru’s case, fuel standards in the country make efficient and optimal operation of modern imported machines difficult. Although Peru aims to be at or under the PCFV’s required 50ppm by 2016, modern Tier-4 trucks engineered to 10ppm still have a long wait ahead before operation becomes consistently feasible.

Analyzing the Trends

If you take a look at the IHS 2014 Global Insight report on construction, you’ll see that Latin America increasingly represents important growth and investment opportunities in the construction sector. Where construction booms, so does heavy equipment sales. The report ranks Colombia and Panama among the top 15 fastest growing markets and among the top 20 markets on the growth opportunity index. Though South American opportunities are not without risk— Ecuador, Argentina, and Bolivia all rank highly on the top 20 highest-risk markets index.

Analyzing the demand for heavy equipment in not only Peru, but in emerging markets generally, is further complicated by industry (construction, forestry, mining), local manufacturing capability, import difficulty or restrictions (e.g. PCFV standards), and whether we are considering new or used sales. Peru is an interesting market because it has large heavy equipment demand in the mining sector, but is also expected to grow its construction industry significantly in the coming years. 

Though insightful, the E&MJ report on heavy equipment in the Peruvian mining sector lacks information about used equipment sales or auctions, relying only on information from industry new sales leaders. Other important information to consider would be the number of heavy equipment and machinery present in the country and the amount of equipment manufactured locally. These figures might help us to understand what the used construction equipment market really looks like, the real number of heavy equipment imports and perhaps even how the increasing environmental standards are impacting such an exciting emerging economy.