Economic, Industry & Market Research Area December, 2022

Sector Report – Construction

Industry Balance Remains Resilient, but with Signs of Slowdown

Monthly Report
Industry Balance Remains Resilient, but with
Signs of Slowdown

Our View
The latest figures for the construction sector show a Ready-mix production (mn m3 )
deepening in the rate of decline in home sales. These
recorded 13,005 units in November, down 43.5% YoY, 0,70
which has deepened for the sixth consecutive month. This
trend explains a negative signal regarding the possibilities 0,60
of future growth of the sector and related activities.
Additionally, civil engineering works haven’t consolidated 0,50
significant growth. The analysis of proprietary data helps us
build a synthetic indicator of civil engineering activity 0,40
(IMOC) which allows to deliver timely information, on a
monthly basis, regarding the performance of the sector. 0,30
According to the IMOC, civil engineering would have
expanded 9.7% YoY in October, beating the highest figure, 0,20
recorded in May (4.6%), although it remains below Oct-19 Oct-20 Oct-21 Oct-22
expectations.
Source: Grupo Bancolombia, DANE.
Having said this, we maintain our view that the sector has
begun a slowdown process triggered by a persistent annual
drop in housing sales and therefore in the sale of Cement shipments (mn tons)
construction materials, partly driven by high credit costs.
Thus, as shown by the drop in credit, the sector will 1,30
continue to slow down.
1,10
Meanwhile, the execution of infrastructure works continues
without showing conclusive progress even though there are 0,90
a significant number of projects yet to be completed.
The expectation remains about the recovery of the civil 0,70
engineering segment in 2023, when 5G projects begin to be
executed and the 4G projects pending completion resume 0,50
works.
0,30
Construction Material
0,10
Cement & ready-mix concrete Oct-18 Oct-19 Oct-20 Oct-21 Oct-22
In October, total ready-mix production in Colombia posted Source: Grupo Bancolombia, DANE.
an annual growth of 5.6%, reaching a volume of 0.60 mn m3 .
This accounts for the resilience of construction activity, Analysts
which continues to grow despite a tough operating
Juan Camilo Dauder Sanchez
environment. However, growth is beginning to consolidate Construction Sector Analyst
at single-digit levels and seems to have a certain downward jdauder@bancolombia.com.co
bias.
Ready-mix production vs. cement shipments (YoY change) Ready-mix production by use (YoY change)

50% 100%

60%
30%
20%
10%
-20%
-10% -60%

-30% -100%
Oct-19 Oct-20 Oct-21 Oct-22 Oct-19 Oct-20 Oct-21 Oct-22
Despachos de Cemento Producción Concreto Vivienda Obras civiles Edificaciones

Source: Grupo Bancolombia, DANE. Source: Grupo Bancolombia, DANE.

In terms of cement, total production reached 1.25 mn tons, Ready-mix for civil engineering works fell 3.2% YoY, a poor
1.14% higher YoY. Shipments totaled 1.12mn tons, down performance that seems difficult to reverse in the short
2.35% YoY. term. Ready-mix for buildings remained in negative
territory, with a 3.7% YoY drop, a persistent weak behavior.
Both the annual drop in shipments and the modest growth
In September, imports of cement and clinker reached 81.01
in production are worth highlighting, factors that show a
tons, 24.36% lower YoY. This record shows a significant
loss of dynamism as the comparable base incorporates
rebound against the previous month. However, both clinker
periods of good performance in construction activity.
and cement imports remain at low levels and with a
downward trend despite the drops in freight rates and
Ready-mix demand was led by the housing segment (+11%
higher local cement prices (see BDI).
YoY). In this category, the contrast between the
performance of low-income housing (58.1% YoY) and non-
low-income housing (-20.9% YoY) stands out as usual. The
drop in non-low-income housing is also noteworthy, the
fifth in a row in annual terms, which shows a deepening of
the slowdown in activity on this front.

Ready-mix for housing by segment (y/y change) Cement and clinker imports (000 ton)

100% 130

50% 80

0%
30
-50%
-20
-100% Sep-14 Sep-16 Sep-18 Sep-20 Sep-22
Oct-18 Oct-19 Oct-20 Oct-21 Oct-22 (000 ton) (000 ton)
VIS No VIS Clínker Cemento

Source: Grupo Bancolombia, Dane. Source: Grupo Bancolombia, Sicex. Vol en 000 ton y precios FOB en USD/ton
Freight and Other Construction Materials
Baltic Dry Index (puntos) International steel price (rebar SHFE) - USD/tonne

6.000
1.000
5.000 900
4.000 800
700
3.000
600
2.000
500
1.000 400
Nov-20 Nov-21 Nov-22 Nov-23
0 Rebar Steel SHFE Forecast
Nov-17 Nov-18 Nov-19 Nov-20 Nov-21 Nov-22
Source: Grupo Bancolombia, Reuters. Source: Grupo Bancolombia, Reuters.

As of October, the BDI (Baltic Dry Index) stood at 1,355
points, down 55.1% YoY, a low for 2022. Thus, the index
completes eighth months with annual declines and the
trend consolidates. It is worth noting that these prices are
reached after a marked decline towards levels below 1,000
points in August.
At the end of October, the prices of the main construction
materials continued to rise at double digits in most cases.
According to the PPI, this behavior was led by plaster, lime
and cement (15.06% YoY), hardware materials (13.52%
YoY), iron and steel (12.64% YoY), paints and varnishes
(11.14% YoY), glass (11.04% YoY), mortars and ready-mix
concretes (10.76% YoY), metal products (9.59% YoY),
ceramic products (5.42% YoY).
At the time of this report, the price of rebar steel on the
Shanghai Stock Exchange reached USD520.5 tons, stable
against the previous month but at a low level in the annual
comparison. Since the beginning of 2022, the price of this
material has been decreasing and is now at levels similar to
those seen at the end of 2020. However, short-term
projections show stability at around USD565/ton over the
next 12 months.
Real sales of construction materials continued to expand in
four of the six subsectors evaluated. At the end of October,
the materials with the highest real growth in sales were
glass (18.36% YoY), paints and varnishes (12.77% YoY), iron
and steel (11.60% YoY), non-metallic minerals (3.68% YoY).
Hardware stores (-2.43%) and metal products (-17.27%
YoY) recorded decreases.

Producer price index (points) Real sales index (points)

170
220
200 140
180
110
160
140 80
120
100 50
nov-18 nov-19 nov-20 nov-21 nov-22 Nov-19 Nov-20 Nov-21 Nov-22
Iron & Steel Ceramic Products
Iron & Steel Ceramic products
Paints & Varnishes Metal Products Paints & Varnishes Glass
Glass Plaster, Cement and Lime Metallic products Hardware stores
Source: Grupo Bancolombia, DANE.
Source: Grupo Bancolombia, DANE.
 Buildings
Construction licenses (y/y change) Willingness to buy a home (%)

150%
10%
100%
-10%
50%
-30%
0%

-50% -50%

-100% -70%
oct-19 oct-20 oct-21 oct-22 nov.-19 nov.-20 nov.-21 nov.-22
Source: Grupo Bancolombia, DANE Source: Grupo Bancolombia, Fedesarrollo.

In September, there were housing construction permits
issued for 1.80 mn (sqm), up 66.27% YoY. With this figure,
licensing maintains high annual growth both in low-income
(76.48% YoY) and non-low-income housing (61.48% YoY),
which shows that the dynamics of the sector should have a
good potential basis for projects that could start in the
future. However, whether these materialize in works will
largely depend on the resilience of housing investors to the
economic conditions.
In October, housing supply fell 9.3% YoY, reaching 149,216
units. This behavior is mainly explained by the fall in the
supply of the non-low-income housing (-12.86% YoY).
However, it is noteworthy that the supply of low-income
housing recorded its fifth consecutive annual fall. Thus, the
fall in supply is maintained for sixteen consecutive months.
Housing sales recorded 13,005 units in October, down
43.5% YoY, which accentuates the negative trend of
previous months. This figure is explained by the drop in
both the low-income (-43.9% YoY) and the non-low-income
housing segment (-42.7% YoY). Thus, the deterioration in
housing sales consolidates a trend that suggests a
moderation or even a decrease in construction activity in
the coming months.
Fedesarrollo’s home purchase willingness survey shows that
in November interest in buying this asset reached -42.7%,
deteriorating against October. However, it remains at quite
negative levels, confirming the low appetite for real estate
purchases shown by other indicators.

Housing Supply by Segment (units) Housing Sales by Segment (units)

100.000
18000
90.000 15000
80.000 12000
9000
70.000
6000
60.000 3000
50.000 0
nov-19 nov-20 nov-21 nov-22 nov-19 nov-20 nov-21 nov-22

VIS No VIS VIS No VIS

Source: Grupo Bancolombia, CAMACOL. Source: Grupo Bancolombia, CAMACOL.

Rates & Credit
Home Acquisition Rate vs. Monetary Policy Rate Housing Construction Rate vs. Monetary Policy Rate

20% 15% 20%

15% 15%
10%
10% 10%
5%
5% 5%

0%
0% 0%
nov.-12 nov.-14 nov.-16 nov.-18 nov.-20 nov.-22
nov-18 nov-19 nov-20 nov-21 nov-22
Tasa media ponderada adquisición vivienda Tasa media ponderada construcción de vivienda
Tasa de intervención (Der) Tasa Intervención

Source: Grupo Bancolombia, Banrep Source: Grupo Bancolombia, Fedesarollo.

The weighted average home purchase rate stood at 16% in Similarly, the average rate for housing construction climbed
November, after advancing 60 bps against October. With to 15.4%, accumulating a rise of 1,000 bps so far this year.
this, the rate records an increase of 720 bps so far this This implies an increase more than proportional to that
year, an adjustment less than proportional to the 800 bps recorded by the benchmark rate; against the previous
of the Central Bank’s benchmark rate. At the time of this month, it rose around 90 bps.
report, the Central Board’s board of directors had already
announced its decision to hike the monetary policy interest
rate by 100 bps, bringing it to 12%. Therefore, new upward
adjustments are expected.
As of September, the mortgage portfolio of credit
institutions maintains its dynamism despite decelerating
marginally compared to the latest records, growing 15.1%
YoY. Thus, it appears that the mortgage portfolio may have
possibly peaked or reached one of its highest points in its
current expansion cycle.

Housing Portfolio Annual Growth (%) Constructor Credit Dibursements

1,5 1.500
15%

13% 1,0 1.000

Millones

11%
0,5 500
9%
0,0 0
7%
sep.-10 sep.-13 sep.-16 sep.-19 sep.-22
5% Número desembolsos
nov-17 nov-18 nov-19 nov-20 nov-21 nov-22 COPmn

Source: Grupo Bancolombia, Banrep Source: Grupo Bancolombia, Asobancaria.

Infrastructure
Civil works construction cost index (ICOCIV) - Monthly
IMOC Bancolombia (index base 100 = Dec 2012)
change
180 12,0% 118
160 116
9,0% 114
140
112
120 6,0% 110
108
100
3,0% 106
80 104
0,0% 102
60
nov-12 nov-14 nov-16 nov-18 nov-20 nov-22 Jan-22 Apr-22 Jul-22 Oct-22
Indicador IMOC mensual est. IPOC trimestral ICOCIV Var año corrido (%)

Source: Grupo Bancolombia, DANE Source: Grupo Bancolombia, DANE.

The analysis of proprietary information helps us build a
synthetic indicator of civil engineering works activity
(IMOC). Our indicator allows to deliver timely information,
on a monthly basis, on the performance of this sector. This
lets anticipating the trends that the country is going
through. Civil engineering works should have expanded in
October 9.7% YoY, the best record since May (+4.6%),
although remaining below expectations.
Finally, the ICOCIV (civil engineering works construction
cost index) increased 1.08% MoM in October. The items that
contributed the most were other works (1.10% MoM) and
highways (1.17% MoM). So far in 2022, the ICOCIV has
increased 9.41%.
 Economic, Industry and Market Research
Chief Economist and Head of Economic, Industry and Market Research
Economic Research
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Head of Quantitative and Analytics
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Industry Research Equity Research
Jhon Fredy Escobar Posada Juan Camilo Dauder Sánchez
Head of Agroindustry Research Construction Sector Analyst
jhescoba@bancolombia.com.co jdauder@bancolombia.com.co
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Head of Commerce Research Financial Sector Analyst
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Junior Sector Analyst
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Media
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Intern
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Administrative Assistant
sgmonsa@bancolombia.com.co
Research Assistant
Alejandro Quiceno Rendón
Research Editor
aqrendo@bancolombia.com.co
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Currently, the Market Research Management has 19 companies under coverage, distributed as follows:

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Number of issuers with long-term strategies of: 12 2 4 1

Percentage of issuers with long-term strategies 63% 11% 21% 5%

of: