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Egypt Metals Report Q3 2011
Business Monitor International, June 2011, Pages: 45
Business Monitor International's 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.
The Egyptian steel industry is recovering slowly from the unrest that hit the country in early 2011, but has weathered the storm far better than neighbouring Libya where steel output has collapsed. Egypt could overtake South Africa as Africa’s leading steelmaker.
In the first four months of 2011, Egyptian crude steel production grew 6.6% y-o-y to 2.1mn tonnes. This follows 21.1% growth to 6.57mn tonnes in 2010, assisted by export growth of 77% to around 963,000 tonnes and 18% growth in domestic finished steel consumption to 8.37mn tonnes. However, compared with the previous four months, output was down 9.8%, hampered to some extent by civil unrest that began in January and its impact on the steel markets, production and logistics. At the same time, spot prices for steel products grew sharply as a result of the turmoil in Egypt, with construction steel reaching US$640/tonne in Jeddah, indicating Egypt’s importance to regional steel markets.
While BMI anticipates a recovery over the rest of 2011, the early poor performance will ensure that output grows just 2% to 6.70mn tonnes. Sustained political stability will be crucial to the operation of the domestic steel industry as well as maintaining a market for output. Any strike action or curfew would pose further setbacks that could undermine the Egyptian steel industry’s ability to repeat the strong performance of Q410. The disruptions to production and lower output growth levels are accompanied by a downward revision in BMI’s GDP growth forecast from 5.1% to 3.2%. While the devaluation of the Egyptian pound meant that imports fell drastically, the resumption of port operations meant exports were quickly returning to normal, helping to restore sales.
Before the unrest broke out, BMI anticipated that the Egyptian metals market would be held back by relatively low domestic demand in 2011, compounded by a downturn in demand in Europe and output expansions in Turkey and the Middle East undermining Egyptian exports. Much of the growth in output in 2010 was driven by collapsing imports, and the one area of consistent improvement throughout the year – exports – was under threat from a renewed slowdown in developed economies and global trade. This effect will be countered to some extent by the fall in the value of the Egyptian pound, which should enable Egyptian producers to compete more effectively with Turkish rivals.
Beyond 2011, a rebound in the tourism industry, combined with significant growth opportunities in the banking, housing and infrastructure sectors should ensure that a prolonged period of low growth remains off the cards. Expansion in capacity over the forecast period should ensure that Egyptian crude steel output reaches around 11.56mn tonnes by 2015, as we have forecast previously. That said, there is an element of uncertainty and unforeseen political problems could undermine the steel industry. Some segments will fare better than others, with 4.4-5.6% growth in the construction sector from 2010-2014 likely to buoy demand for rebar and other construction-related metals products. Automotive production is also recovering, although it is likely to be 2012 before it outstrips pre-crisis levels. This should lift the domestic use of aluminium and sheet steel.
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