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Egypt steel industry facing uncertainties
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Thursday, 28 Mar 2013
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Oxford Business Group reported that after several years of strong demand growth, the economic slowdown and investment uncertainty associated with the 2011 revolution and its aftermath have dampened steel consumption in Egypt leaving potential supply above demand.

This gap partly explains the government’s decision to impose import tariffs, the rationale being that Egypt should not need imports if its domestic supply outstrips its own needs. For steel consumers, however, it is not necessarily that simple. They feel they should be free to import cheaper foreign products.

Steel rebar prices rose by just over 10% in January to EGP 4850 from EGP 4400. The price increase has largely been driven by the fall in the Egyptian pound against the US dollar, caused by Egypt’s political and economic outlook.

Industry leaders also blame import tariffs intended to protect the local industry from dumping by other countries for exacerbating the problem. The fall in the pound has affected many sectors that import inputs but the steel industry has been particularly badly hit.

Mr Mohamed Hanafy the executive manager of the Chamber of Metallurgical Industries in the Federation of Egyptian Industries said that around 95% of steel production costs are from imported materials.

Between 2004 and 2010, finished steel consumption in Egypt rose from 3.4 million tonnes to 8.5 million driven by economic and population growth. However, the revolution and its fallout as well as a constrained international economic environment saw finished steel consumption fall to 7.3 million tonnes in 2011 and 2012 of which 6 million tonnes were long products generally used in construction.

In November 2012, the Ministry of Industry and Foreign Trade imposed a temporary 6.38% import tariff on imported steel with a minimum charge of EGP 299 per tonne. The fee was due to be in place for 200 days but there are already calls for it to be lifted to moderate price pressure. Meanwhile, on February 26 the local press reported that an appeal had been made to Egypt’s administrative court to repeal the levy. The court is expected to rule in April.

Since the duty was imposed, Egypt’s rebar imports from some countries have plunged. In December 2012, Turkey a major source of steel for Egypt exported fewer than 5000 tonnes to the North African country down more than 50% MoM and a fall of more than 90% on December 2011. Turkey is now looking to invest in steel production in Egypt itself. Meanwhile, Egyptian producers have been able to raise their prices, from EGP 4025 to EGP 4080 per tonne in February to EGP 4851 to EGP 4950 in February.

Mr Solb Misr an Egyptian steel group which itself accounts for one quarter of capacity said that Egypt is currently one of the Middle East and North Africa region’s bigger steel producers with more than 20 plants and a total capacity of 8 million tonnes per year.

Mr Solb Misr expects demand for long products to recover to 7 million tonnes in 2013 as the market returns to its previous upward trend. There are a number of reasons to agree with this upbeat assessment, most particularly the fact that Egypt needs steel to meet its increasing housing gap. Estimates of the housing shortage range from 1 million to 1.5 million units which is expected to rise further given Egypt’s large, youthful population.

While housing is indeed pressing, there is also demand from the infrastructure construction segment. Egypt is currently building power plants and other energy facilities and has plans to develop its rail network. The private sector is anticipating increased demand in the industrial and commercial segments.

In the right economic and political climate, this pent up demand should be released and provide business for both domestic producers and importers. However, with the political situation in the country still volatile and foreign investment almost at a standstill, the construction sector, like much of the economy is on hold until greater stability is established.

Source - Oxfordbusinessgroup.com

(www.steelguru.com)

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