CAIRO: Minister of Trade and Industry Rachid Mohamed Rachid may have tried to counter dramatic cement price increases this year by setting a LE 300 per ton price cap off the factory floor, but the reality is, in an industry dominated by the private sector, many companies are ignoring the government s regulation attempts.
In Cement Beni Suef, for example, the ex-factory price reached LE 355 per ton, according to the Construction Materials Traders Union (CMTU). Inside Cairo, most companies have stayed in the range of LE 320 to LE 330, far from the industry s verbal agreement with Rachid s ministry to sell at LE 300 and an even farther cry from MFTI s LE 290 limit.
[Minister Rachid s] efforts have succeeded in slowing down the rapid increase in prices, but they haven t forced them to go down as intended, says CMTU Secretary General Abdel Aziz Kassem. It s clear cement companies have much more power than the government, especially since their transfer to the private sector via privatization was made in many cases with the condition that the government not interfere with selling and marketing policies.
The government intervened in late August after local factory prices reached as high as LE 390 in Q1 of this year before stabilizing around LE 350 to LE 360 in Q3.
In mid-Sept., several companies agreed to lower their prices to LE 300 after Rachid threatened serious measures in cases of non-compliance. The moves by Suez Cement and its subsidiary, Arab Swiss Engineering Company (ASEC), and Portland Torah Cement gave market watchers at the time reason to be optimistic about market compliance with the ministry since the three companies control more than 30 percent of the market, combined.
In early August, Suez Cement acquired a 69 percent share in ASEC, making the former the largest cement producer in the country with 12.4 million tons in annual production, representing a 30 percent market share. The Egyptian Cement Company is the second largest producer with 7 million tons. The companies agreed to lower their prices from LE 332 per ton.
Still, few others followed their example. Even the 95 percent state-owned National Cement Company (NCC) continued to break the LE 300 limit. NCC is the largest public sector producer with 3.2 million tons annually.
There s no law that says cement companies must abide by government price caps, says one cement sector analyst who declined to be identified. In a free market, you must allow prices to rise and fall. So the government will have a hard time enforcing any kind of price regulation.
On the other hand, the government has made favourable conditions for local cement producers which has helped keep high profit margins for companies and local prices below international levels. Those conditions can be reversed at anytime, which is what the government has been threatening, the analyst adds.
According to HC Brokerage, small caps in the industry have averaged LE 150 per ton in gross profit margins, a number nearing 50 percent of overall cost.
One CMTU official, who also declined identification, says it s unlikely the government can regulate the industry because some cement manufacturers use monopolistic practices which are hard to detect, such as the purposeful creation of market shortages in order to force prices up.
What s happening now is you have multinationals that are control of the market, HC Cement Sector Analyst Ahmed Badr says. Before, the government used to be in control so it could set the price. Now multinationals are running the market, so why can t they raise prices?
Still, other analysts say Egyptian market prices remain below others in the regions such as Turkey, which is currently averaging about $71 per ton (LE 408), according to HC.
