Facing rapidly increasing prices and demand on cement, the government is moving ahead with plans for new factories, Nesma Nowar reports Global and local firms are getting ready to compete over eight new cement factory licences that will be offered soon by the Egyptian government through an international bidding process. Amr Assal, head of the Industrial Development Authority (IDA), told Al-Ahram Weekly that bidding would start as soon as the Supreme Council for Energy (SCE) decides how the new factories will be supplied with energy. "We are waiting for an upcoming meeting to have this issue discussed," Assal said. The Ministry of Trade and Industry recently announced it was offering eight new licences to build cement factories with production capacity of 1.5 million tons each. The new factories aim at meeting rapidly increasing demand on cement. Minister of Trade and Industry Rachid Mohamed Rachid said the new factories are vital to the adequate supply of cement, demand for which is expected to reach 77 million tons by 2017 compared to 49 tons last year. He added that failing to meet market needs could lead to increased prices and, consequently, higher real estate prices. In fact experts believe cement prices will range between LE550 to LE700 this summer. The increase comes on the back of the five per cent tax imposed on cement along with steel and cigarettes to procure additional funding for the government budget. The tax goes into effect today. But Ahmed El-Zeiny, head of the Building Materials Division at the Cairo Chamber of Commerce does not believe the five per cent tax justifies all this increase in price. "The tax should only mean a rise of LE25." In his opinion, cement factories tend to raise prices haphazardly. "Already Cement factories have raised prices twice this year without any specific reason." He highlighted that the local price of cement is $30 higher than the international price. But to some experts handing out licences is not the solution. They believe the government should bridge the gap between production and consumption by importing cement, especially that global prices are very close to local prices. Experts claim that importing is better than building new factories, as the energy these factories would consume could be saved. Experts believe that Egypt is facing an energy crisis and that the government has to limit the growth of energy intensive industries in favour of less energy intensive industries. Other experts said the government should import energy for these factories and benefit from the low global price of natural gas. Noha Bakr, communications director of Lafarge Cement Egypt, said that in the last two years -- particularly in 2009 -- demand on cement grew unexpectedly by 25 per cent and exceeded supply. Bakr said that this increase in demand was due to several factors: the decline in the price of steel, the government sponsored "Build Your Own House" programme, the government's need to execute infrastructure projects during this period in an attempt to climb out of the financial crises, and higher demand on investment in real estate as a reaction to the global stock market crisis. Bakr also pointed out that increased demand on cement resulted in increased cement prices. To pull the brakes on skyrocketing prices, the government banned the export of cement and made it obligatory for factories to print the price on cement packages. It also decided to offer new licenses to build cement factories. The gap between the demand and supply has been covered through importing cement from Turkey at reasonable prices, Bakr said. She added that cement is a strategic commodity and it is beneficial for the government to have its own plans to secure the supply of cement over the coming years. Dina El-Kayali, research consultant at Integrated Market Solutions (IMS), a company that does marketing research for cement factories, said that local demand on cement will be increasing according to several demand drivers which include the housing needs of a growing population and a promising real estate market. El-Kayali said that 11 cement factories operate in the Egyptian market, pointing out that the local market does not prefer imported cement. "People believe that the dark local cement is stronger and better than the imported one," she said. "That's why local manufacturing of cement is preferable." El-Kayali added that there is a growing demand on cement all over the world and developed countries are seeking to build cement factories in less developed states. "The cost of building a cement factory in less developed countries is less than in developed ones," she noted, stating that Egypt is an attractive place for investors to build new cement factories. "We have the raw material, cheap labour, as well as the blooming demand on cement." Building new factories will help meet local demand in the long run and will benefit the economy by creating jobs and producing cement for export, El-Kayali said. According to a source that preferred to remain anonymous, "it is not practical to import 17 million tons of cement to meet the expected increase in demand by the year 2017." The source said that these new factories will lead to a balance in the cement market which in turn will prevent any price increase. Last November, the Industrial Development Authority's (IDA) Licensing Committee cancelled the licences of two firms, Al-Wadi Cement and North Sinai Cement, over start-up delays and financing shortfalls. Each was granted 60 days to appeal. However, the two firms did not meet the conditions during the appeal period. As a result the IDA opened bidding again for the two licences last May. The bidding is set to close early July. Al-Wadi Cement and North Sinai Cement had been granted their licences in 2007. Both firms were part of six cement factory licences that had been offered in late 2007.
