Niveen Wahish tries to understand Egypt's decision to allow greater steel imports This week the Ministry of Trade and Industry decided to allow the importation of steel manufactured according to Gulf standards as well as steel manufactured according to GSO ISO 6935 standards. Prior to this decision, only steel made to Egyptian standards was allowed into the country. Earlier this year, such a decision would have appeared to be a lifesaver, helping fight prices which at one point reached LE8,000 per tonne. But with prices on a downward trend, the decision was received with mixed reactions. The price of steel dropped slightly this month to around LE6,150-6,300 per tonne, down from LE6,970-7,750 per tonne last month. Prior to this recent drop in prices, steel prices were almost double their levels in January this year. The hike was attributed to increased demand from emerging markets and a higher cost of production inputs. Meanwhile, the current price drop is attributed to the global decline in the cost of raw materials such as scrap metal and pellets, an essential components for the industry. One would imagine that local steel manufacturers would be the first to be troubled by a decision to allow broader importation. Interestingly that does not seem to be the case. A source at one of the major local producers does not believe that this decision will make such a change in practice. "There was nothing stopping importation in the first place. In fact the Gulf and ISO standards are tougher to abide by than Egyptian standards," the source told Al-Ahram Weekly, speaking on condition of anonymity. The source added that he does not believe that increased imports pose any threat to local production at all. Imported steel, he said, has to bear the additional cost of shipping and storage, possibly rendering it more expensive than the local product. In the meantime, he says local production is already priced adequately and any price fluctuation is dictated by changes in the price of raw materials internationally. Patrick Gaffney, vice-president for equity research at investment bank EFG-Hermes, believes the decision was a move to confirm that the government is committed to open its markets. He does not believe that there will be a significant change in the amount of imported steel, but "it will guarantee that local producers follow international prices," Gaffney said. Because international prices are lower than they are locally, the move will help local prices align with international prices, he said. In his opinion, locally manufactured steel may well end up being priced below imported steel because local manufacturers do not have to take into account the cost of shipping and other expenses related to importation. Not everyone took the decision so lightly, however. Another source closely linked to local producers was totally against the decision. "It is cornering local producers into lowering their prices to international levels," said the source, who also requested anonymity. "They will be doing so at a great loss." The source went on to point out that Egyptian producers' costs are much higher because they stockpiled on raw materials when they were expensive, for fear that prices would skyrocket further. In his opinion, this decision may lead to a catastrophe causing local producers to go bankrupt, particularly since many of them are dependant on bank loans and may default on repayment. He believes that imports from countries such as Turkey or Ukraine, which have a relative advantage in the production of steel, will deal a tough blow to the local industry. In 2007 Egypt produced some 4.9 million tonnes of long- steel rebars, which are mainly bought up by the construction industry. Local production barely covers local demand. According to a report issued by EFG-Hermes in July this year, Egyptian demand for steel will continue to grow over the next three years on the back of high local economic growth, construction and real estate growth and growth in local industrial production including that of household goods. The report also estimated the total steel demand in Egypt to increase by 10 per cent this year, then to drop one per cent annually until "it falls back to general economic growth trends" in 2011. Nonetheless, in 2009, the report says that local long steel production will no longer be able to keep up with demand and imports will be needed to fill the gap.
