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Egypt Metals Report Q2 2010
Business Monitor International, March 2010, Pages: 54
The Egypt Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Egypt's metals industry.
Although Egypt is handling the recession better than expected, key metals-consuming industries are struggling, with the construction sector hit particularly hard. Growth in the sector fell from 10.32% in 2008 to 1.73% in 2009 and is set to remain flat over the next two years, according to this latest Egypt Metals Reports.
Rising cement prices are depressing construction steel, while the automotive sector is suffering from subdued lending, depressing car sales with a knock-on impact on flats production. The chief growth area, both short-term and long-term, is appliances, packaging and containers and machine tools, which in turn will be heavily influenced by private consumption and investment. The poor performance of metalsconsuming industries had a knock-on effect on crude steel output which declined by 11.1% year-on-year (y-o-y) to 5.51mn tonnes. The upswing expected in Q409 never materialised and crude steel output in the quarter was only 3.6% above the previous quarter and 8.8% up on Q408. While this was above global growth of 2.4% quarter-on-quarter (q-o-q), it was disappointing in the context of emerging markets. The analyst had expected construction activity to resume sooner in the wake of government pledges of stimulus programmes, but instead this looks likely to take place later in 2010.
In terms of the broader economy, we are forecasting a small-scale ‘double dip’ in real GDP in 2009-11. Thereafter, we see the economy returning almost to trend, averaging 5.3% growth over 2011-2014. This implies further uncertainties in domestic demand for semi-finished and finished products in 2010, with the report forecasting modest 6.7% growth in apparent finished steel consumption to 6.3mn tonnes. This will feed into lower rates of steel production growth, with the report forecasting a 6.8% rise in hot-rolled output to 6.3mn tonnes.
Despite declining global and domestic demand for flat steel, mainly used in consumer products, rebar output in Egypt has shown relative resilience, fuelled by the robust construction sector. We expect this tendency to continue over the next year as demand for residential units keeps growing. Another factor likely to support this trend is the government’s new stimulus package, with EGP11bn announced in January 2010 following injections of EGP15bn in October 2008 and EGP8bn when the budget was announced in June. However, its effect on the steel sector is dependent on the time span between the allocation of money to an infrastructure project and the commencement of work on it.
A recovery in flats from 2011 should assist the steel industry’s recovery over the rest of the forecast period, with crude output reaching 10.83mn tonnes in 2014. Although this represents a 97% increase over 2009 estimates, it will still not be enough to cover domestic demand, which is set to grow by 77% to just under 12mn tonnes in 2014. Growth in demand may not necessarily lead to concurrent growth in output. Domestic producers are struggling to keep up competition with cheaper imports and their market share is set to shrink in 2009. Growth in the rebar market has largely benefited imports from Turkey. A key issue is the Egyptian industry’s inability to compete in terms of price. Trade liberalisation represents a significant threat if producers do not improve production processes and achieve leverage over raw materials costs. Local producers predominantly use iron ore, mainly in pellet form, with iron ore supplies’ prices tied by longer-term contracts. Manufacturers whose main input was scrap, like Turkish importers, have been able to adapt their production process in shorter time periods and react faster to fluctuations in input prices, transferring cost reductions to their customers and gaining market share.
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