Egypt's steel prices slump 30% at Ezz, the largest steel company
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Steel analysts believe that as the international prices of raw materials such as scrap have been declining, and the slowdown in domestic growth has led to a weakening of demand, it is not surprising that prices are lowered. “The reasons for the drop in prices are falling international steel prices, reduced demand and competitive imports,†explains Patrick Gaffney, an analyst at EFG-Hermes Steel, an investment bank. “But we are surprised by the extent of the recent downward adjustment.â€
The deep concern about the global economic recession has kept consumers away from the purchase of homes, cars, and home appliances, which has weakened the global demand for steel. The demand for steel in the first half of the year pushed the price of scrap to about US$700/ton in June, but the price dropped to about US$300/ton with the declining construction industry in the summer and the deepening financial crisis.
At the London Metal Exchange (LME), the price of steel embryos used primarily for construction has plummeted in the past few months from the high of $1,250/tonne at the end of June to less than $400/ton this week.
In Egypt, Noeman believes that domestic sales have recently entered a recession period and was almost stopped in October. He said, "We see demand contracting in October because consumers are waiting for prices to fall."
Gaffney agrees that consumers delay buying because they expect prices to fall. He said, "We are worried that consumers will not believe that prices will stabilize at current levels and will curb their purchases again. This will force Ezz and other steel producers to cut prices again." But he ruled out the possibility of further price cuts. Sex, and hope the price stays at the current level. He believes that if prices fall further, steel production is not economical, and the factory will be shut down.
Affected by the overall downturn in the domestic market, Ezz Steel's performance is not optimistic. George Matta, chief marketing officer of the company, said that in mid-October, the company’s sales of reinforced products for housing construction may increase by 13%, while flat steel products will be reduced due to the international financial crisis and will not grow in the second half of the year. Malta believes that due to the global economic downturn, Egypt’s current steel growth is stagnant, but stimulated by the economic recovery, long-term demand will increase the company’s exports of flat steel products.
Ezz holds 65% of Egypt's domestic steel market share. Most of its flat products are exported to Persian Gulf countries and Europe. Matta also said that Ezz plans to build a flat material production plant in Suez with an annual production capacity of 1 million tons (expanded to 3 million tons by 2012) to meet the long-term needs of the Persian Gulf and Europe. At present, the company is negotiating with the bank on financing.
Ezz invested 750 million U.S. dollars in Algeria last year to establish the first steel plant outside Egypt. It said that it would increase annual production by about 92% at the level of 4.8 million tons in 2007. The company will begin to expand production capacity in 2010 and plans to reach 6.3 million tons per year in Egypt and 3 million tons per year in Algeria.