To stabilise the steel rebar market, more needs to be done than simply remove the dumping duties from imported steel rebars, writes Wael Gamal Last week's decision to lift dumping duties on steel rebar imports from Turkey and Ukraine took the market by surprise. This particular measure had been announced by former Prime Minister Atef Ebeid at the start of the year but was never implemented. This time, however, it was implemented immediately. Duties to the tune of 21 per cent for Ukrainian steel rebar imports, and between 14 and 45 per cent for Turkish imports, were previously valid until 2008. The new Minister for Foreign Trade and Industry Rasheed Mohamed Rasheed said the decision was economically justified, which aims to re-stabilise prices in the sector. For three years the price per ton remained stable at around LE1,200. But by the end of 2003 it had jumped to LE3,150; and by April 2004 it had risen to LE3,650. The main producers in the market claimed the cause of this price increase was based on two elements: the devaluation of the Egyptian pound which raised the cost of imported inputs, and soaring international prices. Even after the government lowered customs on imports from 20 per cent to 5 per cent, troubles continued. For a while prices went down to LE2,550 per ton. But just a month before this latest decision was announced it returned to around LE3,300. These fluctuations hit the construction sector hard. Steel rebar products constitute 10 to 25 per cent of building costs. The cost is highest in infrastructure projects, so it is understandable that the construction sector was most enthusiastic about the new decision. "It is really positive for the constructions market. We needed a demand- supply-based confrontation with prices. Fluctuations provided no room for projection, and this is disastrous for the sector. It is a time-lag risk sector, so unexpected price increases are a direct blow up," commented Ibrahim Mahlab, CEO of the giant Arab Contractors. Mahlab is confident that lifting dumping duties will not hurt the national rebar industry. "Our local products have many advantages. Above all, there are no transportation costs. What will really hurt the industry is protectionism," he adds. Nevertheless, the market indicator, the stock market, reacted differently. El-Ezz Steel Rebars stock slumped from over LE10 to below LE8. "The measure had a negative impact. It will manifest itself more in the coming two months when importing begins," said Joseph Iskandar, head of the Research Department at Prime Securities. The stock price of the company, which enjoys 25 per cent of the local market, was about LE1.55 in April 2003. The company was doing better during the previous months. It managed to cut its losses by 95 per cent in 2003 compared with 2002, but still recorded losses of LE51 million in 2003. This, according to the company, was as a result of heavy debt service costs and currency exchange differentiations. But Iskandar predicts that exports can bring the main producers back in the mid-term. Other experts also assure the new measure's effect on prices can be minimal. Amin Mubarak, head of the parliamentary Industry and Energy Committee, points out that "letting the Turkish and Ukrainian steel rebars in will not necessarily take prices down. This is merely a political measure because it eliminates any doubts that the government may be allowing monopoly." Disturbance and lack of predictability in the steel rebar market over the past two years have opened Ahmad Ezz, the industry's most prominent monopolist figure, to criticism. The local rebar industry is dominated by three companies, which together account for 80 per cent of sales. The other 16 companies account for the remaining 20 per cent. Ezz has shares in the largest two companies, which have an approximate 60-per-cent share of the market. He is also a powerful political figure as he is a member of the Policies Committee of the ruling National Democratic Party as well as the head of the parliamentary Plan and Budget Committee, which has a major part to play in allocating revenues for infrastructure projects. Experts confirm that uncompetitive private sector players are likely to either engage in consolidation or exit the market in the near future, making the remaining companies even bigger. This is considered, by some economists, normal within the industry while others consider it a disaster in the absence of an anti-trust law. But monopoly can explain some of the contradictions in the industry and product prices which work against competitive market laws. Firstly, the dumping duties on Ukraine and Turkey came at a time when prices were increasing. The rapid growth of the Chinese economy fuelled demand for steel internationally. Because steel supply is not elastic it could not respond to demand immediately, which resulted in price increases. In this case there is no logic behind dumping. Moreover, Egyptian authorities are lifting the dumping duties while international prices are experiencing a reverse trend. Supply elasticity was more than expected and the Chinese demand decreased due to market saturation. Secondly, according to steel industry expert Ezzat Maarour, "local market prices and increases were always much more than international prices. And the Ukrainian and Turkish steel rebars, plus the transportation costs, are lower than local prices." Thirdly, the Egyptian steel rebar industry is producing 3.3 million tons a year, while its maximum capacity is 6.2 million tons. This is in addition to the fact that three factories, in Cairo and Alexandria, have been closed for the past nine years. An odd situation in times when demand is soaring. The Egyptian parliament Economic Committee has started examining the anti-trust law, a measure which will be indispensable if the market is to be stabilised.
