Industry challenges debated at annual pan-Arab producers conference
CAIRO: Local cement prices continued to fall last week, reaching a LE 320 per ton average according to the Ministry of Foreign Trade and Industry s (MFTI) weekly report, as the Arab Cement Conference wrapped up its annual meeting in Cairo on Saturday, predicting cement production would exceed demand by as much as 100 million tons in 2010.
The price drop also came in light of news of a $500 million (LE 2.8 billion) cement factory to be built in Upper Egypt, either in Minya or Beni Suef, by a consortium of Gulf investors and including Egypt s Naeem Holdings. According to Naeem Chairman Abdel Rahman Al-Husseiny, the consortium has concluded its feasibility studies for the factory expected to produce 3 million tons annually, which would rank it among the country s largest producers.
Cement ex-factory prices reached LE 350 per ton in October after an initial quell following MFTIs orders to producers to reduce the local price to LE 290 per ton. Although MFTI s intervention failed because it lacked the legal means to control a private sector run market, they were credited with slowing down inflationary trends.
[Minister Rachid Mohammed 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 Abdel Aziz Kassem, Construction Materials Traders Union secretary general. 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, with Rachid promising tough measures for non-compliance, after local factory prices reached as high as LE 390 in Q1 of 2005-2006, before stabilizing around LE 350 to LE 360 in Q3.
Arab Cement Association (ACA) President Hassan Rateb says Arab cement production is expected to reach 250 million tons annually in 2010, while demand is expected to top off at 140 million tons. Currently, ACA reports there are 129 cement factories in the Arab world producing 148 million tons annually, representing 6 percent of global production.
According to the 80 percent government-owned National Cement Company, Egyptian consumption increased by 4.5 million tons in 2005 to reach 30 million tons. That left just 6 million tons of the country s estimated 36 million ton annual production for export.
Local analysts attribute the recent spike in cement prices partly to increased demand but mostly to the increasing role of free market forces kept dormant for decades while the government controlled the majority of the country s production.
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 favorable conditions for local cement producers that have 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, citing subsidized energy and low labor costs as some of the advantages enjoyed by local producers.
Still, Rateb says the future of the sector in Arab states depends on its ability to export its surplus and negotiate better shipping rates in order to keep existing profit margins.
