Just as the government announced the winners of four new steel factory licences, local prices jumped upwards, reports Ahmed Kotb Local steel producers have announced their prices for January 2011, with a notable increase in comparison to last month. Ezz Steel (ES), the country's largest producer, now sells its product at LE4,350 per tonne, with a LE350 increase on December. Similarly, both Beshai and National Ataal have added LE425 to their steel prices, bringing these two companies' respective totals to LE4,550 per tonne. To consumers, the increase is unjustified. But according to the Chamber of Metal Industries at the Federation of Egyptian Industries General Manager Mohamed Hanafi, the hikes are driven by the price escalation of the raw materials used in manufacturing steel. "About 85 per cent of the raw materials are being imported," Hanafi said, adding that the prices of these materials, including billet and scrap steel, have increased over the past few months. Hanafi also said he does not expect the increase to push consumers to use imported steel, because prices have also increased internationally. Turkish steel, which has for a long time been the cheapest around, now costs $770 (LE4,600), making local production cheaper. He added that Turkish steel, whose low pricing has up until now been problematic to local producers, has no market share at the moment because of the rising prices of raw materials worldwide. Rehab Taha, an analyst at Prime Investment Group, says that imported steel never had a big share in the Egyptian market before 2009 when the cost of a tonne reached LE8,000, but started to sweep the market since 2009 because it was cheaper than locally produced steel. The new prices were announced just after the Industrial Development Authority (IDA) declared the winners of new steel licences that would add to the local market two million tonnes of steel rebars and one million of billets. According to the IDA, the total investment cost of the new licences stands at an estimated LE2 billion. Some 6,000 new job opportunities have been created with the award. Of the nine companies which applied, Marakbi for Metal Production, Port Said National Company for Steel, IIC for Steel and Al-Watanya for Steel won the new licences. Hanafi said Egypt's production capacity of steel amounts to nine million tonnes. The market consumes 6.5 million tonnes. A study that the IDA carried out to forecast steel production and consumption figures, whose results Hanafi agreed with, showed that by the year 2017, the market will need 15 million tonnes for local consumption alone. The new licences were granted in order to meet the expected demand, Hanafi added. It will take three to five years for the new steel and billet factories to develop and operate. "By the time the new factories start operations, the production will meet the expected growing demand," he emphasised. Moreover, Hanafi said that Egypt is not producing billets in the meantime, and the million tonnes of billets to be produced thanks to the new licence awards will generally bring down steel production costs. Egypt imports 1.5 to 1.8 million tonnes of billets annually, he added. As the IDA declared, 50 per cent of the production capacity of the new licences will be directed to Upper Egypt, and the other 50 per cent to Lower Egypt, which already hosts the majority of steel factories. "Upper Egypt gets priority through the new licences because of the government's plan to continue developing it in the coming period," said Hanafi, adding that many factories will be developed beside the new steel plants, including those whose function will be to collect and recycle steel wastes as well as maintenance workshops, with each new licence thereby increasing job opportunities exponentially. Taha believes the new licences are a result of a flourishing construction sector and a growing number of development projects. Minister of Trade and Industry Rachid Mohamed Rachid was quoted as saying that the government has allocated LE50 billion to the implementation of infrastructure projects through the coming 18 months. Taha also said that the licences will create competition between steel producers and prevent the emergence of monopolies, as such bringing prices down and eventually benefiting the consumer. "ES is no longer controlling the bulk of production," Hanafi noted, adding that "four new factories have been established since 2008 when similar but larger licences were given out by IDA, and they added two million tonnes to the then total production capacity of seven million tonnes." "ES didn't fight for the new licences because they are not of large production capacity," says Kamel Galal, investor relations manager at ES. He added that his company is working on projects which are being developed through a 2008 licence. The main project involves the annual production of 1.9 million tonnes of direct reduced iron (DRI), which replaces scrap steel in producing steel rebars and makes large savings in production costs. "ES has been developing this project since 2009, and production will start in the second half of 2011," Galal stated. ES produces 3.3 million of steel rebars annually. Hanafi added that there will be new steel factories operating by 2011, increasing production capacity to 11 million tonnes.
