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Egypt Metals Report Q4 2011
Business Monitor International, Sep 2011, Pages: 45
The Egyptian revolution and the uncertainties that followed mean the steel industry will perform below previous expectations in 2011, but this latest Egypt Metals Report from BMI anticipates a robust recovery from 2012, provided the country maintains political stability and policy continuity.
In the first seven months of 2011, Egyptian crude steel production grew just 2.2% year-on-year (y-o-y) to 3.8mn tonnes. This follows 21.1% growth to 6.57mn tonnes in 2010, assisted by export growth of 77% to around 446,000 tonnes and 18% growth in domestic finished steel consumption to 8.62mn tonnes. Growth was 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, indicating the country’s importance to regional steel markets. Ezz Steel raised its steel rebar price by 3.1% to US$857.1 per tonne (EGP4,800) in August after keeping the price fixed at US$830.3 (EGP4,650) for two months. In July, Beshay raised its prices by 3.1% to US$875 (EGP4,900) per tonne and Al-Garhy hiked its price by 6.6% to US$901.7 (EGP5,050). Ezz, Beshay and Al-Garhy represent 85% of Egypt’s total steel production. The price increases were in response to rising global prices as well as the rising cost of imported billet. Producers were also seeking to boost consumer demand, prompting them to build inventories by creating anticipation of future price rises.
While BMI anticipates a recovery over the rest of the year, the poor performance earlier in 2011 will ensure that output grows just 2% to 6.70mn tonnes, unchanged from BMIs forecast in previous quarterly report. Egypt's macroeconomic outlook remains weak in the early stages of FY2011/12 (fiscal year beginning on July 1), as ongoing political risk and elevated policy uncertainty continue to weigh on near term growth prospects. Sustained political stability will be crucial to the operation of the domestic steel industry as well as maintaining a market for the output. Any strike action or curfew would pose further setbacks that could again 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 3.2% to 0.5%. While the devaluation of the Egyptian pound meant that imports fell drastically, the resumption of port operations meant that exports were quickly returning to normal, helping to restore sales.
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