Egypt Records 75% Year-on-Year Increase in Steel Consumption in First Half of 2009

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Egyptian steel market has witnessed unprecedented growth during the first half of this year, recording a 75% growth in consumption on a year-on-year basis. Egypt consumed about 2.4 million tons of steel in the first half of 2008, but fulfilled steel demand of 4.2 million tons during the same period this year.

Demand for long steel products has been significant, with the country importing about 3.8 million tons during the first half of this year. The large number of imports led domestic steel producers to slash prices of rebar. However, industry analysts indicate that Al Ezz Steel Rebars SAE (CAI:ESRS) (EZZ Steel) (Cairo, Egypt) and other manufacturers have now raised rebar prices by $36.17 per ton. Currently, the price of rebar in Egypt is about $542.69 per ton.

Globally, the steel industry has been adversely impacted by the economic downturn. Steel producers worldwide have been forced to undertake production cutbacks, defer expansion plans, and lay off employees. The industry, which is still reeling under the effects of the financial crisis, is seeing signs of recovery in some countries. Industry experts say that the Egyptian government's economic stimulus package of $2.71 billion on infrastructure and other development projects in 2008-09 and the proposed $6.6 billion investment during 2009-10 have helped stabilize the domestic steel industry.

A recent report published in The World Today says that in addition to the federal stimulus package, growing demand in Egypt's real estate sector has helped the country's iron and steel sector sustain the repercussions of the global slowdown. The study indicates that the choice of Egyptians to build and buy homes in suburbs rather than in the capital city of Cairo has led to tremendous growth in infrastructure and construction activity across the country. Egypt records about 600,000 marriages in a year, which has spurred demand for new homes and housing units. The building and construction sector is one of the largest consumers of steel. The report forecasts that by 2013, local steel demand will increase at a compounded annual growth rate of 15.6% to 13.4 million tons per year, with rebars accounting for about 82% of overall demand.

Egypt's largest independent steel maker, Ezz Steel, produced 2.232 million tons of steel during the first half of 2009, a 7% slump on a year-on-year basis. Despite the fall in production, the company's sales of long products grew 10% on a year-on-year basis to 1.6 million tons. This has helped in stabilizing the company's revenues, since the sale of flat products declined sharply by 50% at the export level and 41% in the domestic market. The company, which commands about 60% of the domestic market share, operates four manufacturing facilities in Sadat City, Suez, 10th of Ramadan City, and Alexandria. Ezz Steel owns a 53.2% stake in Al Ezz Dekheila Steel SAE (CAI:IRAX) (Alexandria, Egypt), which manufactures flat and long steel products. Al Ezz Steel Mills SAE, in which Ezz Steel owns a 90%stake, produces long steel products. Ezz Flat Steel SAE, in which Ezz Steel owns a 75.2% stake, produces flat steel products. The present combined production capacity of Ezz Steel is 5.3 million tons. The firm employs about 6,000 people.

According to industry reports, Ezz Steel is planning a horizontal integration of its rebar production facility. This process will make use of liquid steel flexible for production of rebars and flat products, and will enable the firm to quickly respond to market demand. With the horizontal integration expected to be completed by mid-2011, Ezz Steel's revenue from rebar is estimated to grow at a 13.1% compounded annual growth rate before interest, depreciation, taxes and liabilities.

Steel analysts are optimistic that the global steel scenario will improve by 2010. Ezz Steel already has charted out augmentation plans that will increase its production capability to 6.3 million tons per year by 2010-11. This includes expansion of rebar production capacity by 1 million tons per year, which will take the total rebar production capability of the company to more than 4 million tons per year.

In its Egypt Metals Report 2009, Business Monitor International (BMI) (London, England) predicts that the construction sector in Egypt is set to grow 5% in 2010. Crude steel consumption in the country has been forecast to increase 0.8%, while usage of finished steel products will grow 3.9% by 2010. The report indicates that by 2013, Egypt's steel imports will increase 77% to 5.27 million tons, while demand for finished steel products will grow 65%.

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