Will this week's new regulations to control steel prices be enough to stabilise the market? Mona El-Fiqi seeks an answer Over the past few months, the steel market has been unstable due to a shortage of supply and hikes in prices. In fact, the price of steel jumped from LE3,800 per tonne in November 2007 to reach LE8,000 this month. Reasons for the leap vary. Producers use the increase in the international prices of bellets (an essential raw material used in manufacturing steel) as an excuse to raise prices, while consumers accuse producers of monopolising the market. The value of bellets more than doubled from $480 per tonne in November 2007 to $1,050 this month. Hence, the value of one tonne of steel rose to LE6,200, but traders also add a large profit margin -- instead of the usual LE200 or so -- which raised the value to LE8,000 per tonne. Meanwhile, price jumps and shortage in supply encourage traders to stockpile large amounts of steel to raise its value. In an attempt to control the volatility of the steel market, and in response to consumer complaints, the Ministry of Trade and Industry (MTI) issued Decree 419 for 2008 on Saturday regulating steel trading. The decree states that each steel factory must determine a maximum sale price, according to production cost, to indicate the price for wholesalers, traders and consumers. All steel dealers will be obligated by this price and violators will be penalised. The factory is also obliged to make public the price at the beginning of each month. The 16 local steel factories should inform the Internal Trade Department of the set maximum price, as well as the factory's dealers and traders. The decree also prohibits sale to dealers who do not comply with the set price. Moreover, on Monday MTI began receiving consumer complaints in all governorates on the hotline 19805. Minister of Trade and Industry Rachid Mohamed Rachid announced that the aim of the decree was to control prices, as well as protect consumer rights by using legal regulations to stabilise the steel market. According to MTI, the new regulations comply with the anti-monopoly and competition law, and that the Egyptian Competition Authority (ECA) will cooperate in applying Decree 419. In reaction to the soaring steel prices, parliament member Mustafa Bakri presented a memo to the prosecutor-general last week accusing Ezz Steel Group -- which produces 60 per cent of local steel -- of monopolising the market to control prices. MTI said that Bakri's claim was referred to the ECA for investigation. Ali Moussa, chairman of the Construction Materials Division at the Federation of Egyptian Chambers of Commerce (FECC), explained that there are no monopoly acts in the steel market as consumers claim, but there are three reasons behind record steel prices; "a shortage in supply, a rise in the price of bellets, and the difference of steel prices depending on each factory's cost price," asserted Moussa. "This led to different prices for steel on the market, and helped traders sell at high prices." The new decree, according to him, is a good step which will help stabilise prices, although it will do nothing for rising bellet costs or shortage in supply. Moussa revealed that due to the continuous increases in the past few months and speculation that cost will continue to rise, consumers and contractors began to stockpile their needs of steel. This caused a shortage in supply, but according to free market rules prices are left to supply and demand, he noted. But the notion of leaving prices to skyrocket because of free market principles is unacceptable to many experts, who believe that in such circumstances the government should interfere to set a reasonable price in order to protect consumer rights. Ezzat Maarouf, former vice- president of the Arab Iron and Steel Union, pointed out that Law 3/2005 gives the prime minister the right to interfere to set a reasonable price with an acceptable profit margin for any product. "The price should be determined according to the cost price of a product," argued Maarouf. "We should not set prices according to international costs since local cost pricing is different." According to him, bellets represent 30 per cent of the cost price of the steel, therefore it is unjustified that steel prices rose more than threefold in the past four years. At the same time, consumers are not optimistic about the effectiveness of this week's decree. Ahmed Mahmoud, a contractor, said that the government has taken many steps in the past to control the steel market but they were in vain. A few months ago, MTI issued a very similar decree (No 143/2007) which obligated factories to make public their prices, but this did nothing for the market. This week's decree, Mahmoud explained, requires factories to also set the price for both traders and consumers in an attempt to regulate the market. The contractor believes that steps are taken, but there are never concrete results for the benefit of consumers. For example, the ECA was looking at the steel market for months to investigate if there were any monopoly acts to control prices, but the results of the investigation were not announced. Mahmoud said that the rise in steel prices will lead to the deterioration of the construction sector, which witnessed a boom in the past few years. This will negatively affect a large number of labourers that work in the sector, he warned. Experts assert that one of the solutions to stabilise the steel market is to increase local production. Maarouf preferred to increase the production capacity of operating factories, rather than the establishment of new production lines. Moussa agreed, offering that steel should be imported to cover the shortage and raise supply. Altogether, he believes that the local steel industry is endangered unless Egypt starts producing the raw materials needed for manufacturing steel. This is the ideal and long-term solution, according to Moussa. "It will be difficult for the industry to continue depending on imported components," he declared. "Otherwise, it will continue fluctuating according to international prices."
