Cement producers may have found themselves cornered by a government decision but the market is happy, Niveen Wahish reports This week the government showed cement producers its teeth when the Ministry of Trade and Industry (MTI) announced a ban on cement exports for four months. During that time, the Egyptian Competition Authority (ECA) will be investigating the activities of the cement sector over the past six months. Meanwhile, the Minister of Trade and Industry Rachid Mohamed Rachid has decided to speed up procedures for the release of imported cement ordering customs to release the cement in three days time, as is the international practice, provided the shipment meets set standards. Before this decision, cement imports were held by customs for 28 days, during which time a series of endurance tests were carried out on the product. The ministry's decisions aim at stabilising prices and making sure the needs of the domestic market are met. And the effect seems to have been immediate. Contractor Hisham El-Quesni said that already on the morning of the decree cement prices began to drop. El-Quesni also said that while prices had been stable at between LE480 and LE520 per tonne, lately cement prices surpassed LE600 per tonne. He added he sees no reason why prices should jump so high, particularly during an economic slowdown. In El-Quesni's opinion, this hike in prices could only mean that cement producers are coming together to manipulate the market. "This decision should be a pinch to the ear," he said, adding that punishment for rule-breaking producers should be toughened. In 2006, the ECA conducted 14-month investigation into anti-competitive practices by cement producers. And in 2008, a court fined 20 cement company executives LE10 million each for monopolistic practices. "LE10 million is peanuts to these factories," El-Quesni said. On the other hand, Haitham Diab, CEO of Zad Holding for Consultancies and International Trade, attributes the hike in cement prices to increased demand. He explained that there is increased demand because steel prices had fallen lately to around LE3,000 per tonne. At one point steel prices had reached LE8,000, pushing anyone wishing to build to delay their decision. "Once steel prices fell, people started building again," explained Diab. In his opinion, the government should investigate the production of factories and their strategic stocks. "If their stocks are high, then they had been hoarding. If not, then the hike in prices is really out of their hands," Diab believes. Speaking on television, Walid Gamaleddin, chairman of the Building Materials Division at the Egyptian Federation of Chambers of Commerce, which represents producers' interests, said the 14 factories currently producing cement in Egypt are barely able to cover the market's needs. He pointed out that cement consumption during the first three months of 2009 is up 30 per cent compared to the same period last year. "Existing factories produce around 40 million tonnes per year and those are all consumed locally," Gamaleddin said. The situation could improve by 2011 as new factories, granted licences in 2008, start coming online. In the meantime, Diab believes that the government decision will rein in prices. The best part of the decision, in his opinion, is the expeditious release of cement from customs in three days. Previously, he said, importers were reluctant to import cement knowing that it would lie in port for 28 days, because cement is easily perishable. As imports start flowing in, the price will drop to as low as LE350 per tonne, Diab estimates. Potential exporters to Egypt include Saudi Arabia, Turkey and the United Arab Emirates (UAE), according to a newsflash by Beltone Financial, titled "The Cement Industry to Face Competition from Imports." The newsflash added that an export ban would be ineffective on prices. It pointed out that MTI had imposed an export ban in March 2008 for six months but that it failed to achieve the targeted results. The report explained that this time it is not exports which are to blame for the price hikes. "In January 2009, total exports of cement were 198,517 tonnes, and in March 2009 exports declined to 15,990 tonnes, accounting for only 0.4 per cent of the total sales volume for March." In Beltone's opinion, the hikes are to be blamed on local consumption, and inefficiencies in the retail distribution channels. Beltone showed that the earnings of manufacturers reached Before Interest, Taxes, Depreciation and Amortisation (EBITDA) margins of over 50 per cent in some instances. And retailers have a role to play as well for having "in some instances, exploited opportunities to raise their margins to almost 27 per cent above the ex- factory prices." Ali Moussa, chairman of the Egyptian Federation of Chambers of Commerce, also believes that the most effective part of this week's decision is the clearance by customs of imported cement within three days. However, he is not very supportive of an earlier decision compelling producers to place the price on the package. This, in his opinion, will create confusion since it will not take into account that the price may differ from one part of the country to another, due to transportation costs. In February, the MTI had issued a decree announcing measures to regulate cement prices on the domestic market. The decree stipulated that cement factories were obliged to offer their agents and distributors the maximum sale price of cement, including the ceiling price to consumers. Moreover, all agents and distributors were required to disclose their cement stocks as well as their records to the Internal Trade Unit at the MTI. Those found to be in violation, the decree stipulated, could be subject to the confiscation of their product, revocation of their permit, closure of their sales outlet, a monetary fine and a jail term of no less than one year and a maximum of five years. February's decree is simultaneously applied with this week's batch of decisions. In fact, according to an MTI press release, 47 violations have been reported against a number of companies, agents and traders in the past few days. Furthermore, 2,767 tonnes of cement worth LE1.3 million were confiscated. MTI warned in its statement that raids of this sort on the market are becoming a habit in order to regulate the market.
