CAIRO: The 100 percent hike in the price of mazut (fuel oil) from LE 500 to LE 1,000 per ton caused a domino-effect in the market, elevating prices of building materials, sugar and paper.
The government’s decision sparked turmoil in sectors that heavily rely on fuel oil for production. Brick kilns producers were among the first to feel the effect, reporting a slump in sales after the price increase.
Producers explained that contracts with dealers were based on old prices but had to be modified after the mazut price increase, as it constitutes 45 percent of operating costs. Dealers, however, rejected the price change.
Prices of bricks have already gone up early this year to LE 515 per ton and then soared to LE 1,020, following the mazut price upsurges.
The decision has also adversely affect prices of cement, which have been rising almost steadily to LE 410-420 per ton. The price hike is expected to heavily impact the country’s housing market.
Officials explained that the reason behind the mazut price surge was to unite domestic and global prices, especially in light of growing domestic demand to 8.5 million tons per year.
The mazut price increase comes as part of the government’s policy to liberalize prices of energy products for industrial purposes. Prices will be fully liberalized in 2009, and subsidies gradually removed to raise prices to actual cost levels, recently announced Minister of Trade and Industry Rachid Mohamed Rachid at a roundtable discussion on energy products and subsidies.
Rachid pointed out that the government did not abruptly raise prices of mazot, as the decision was previously announced last August under restructuring of energy prices. Despite the recent increase, he added, domestic mazut prices were still much lower than international ones, which reached LE 2,400 per ton.
The restructuring of energy prices for industry is part of a more comprehensive plan to restructure domestic markets, stabilize prices and address informal trade.
The ministry will present to parliament in the current parliamentary round a draft bill to regulate internal markets, involving the amendment of 40 laws.
“A three-year program to restructure prices of natural gas and electricity for industrial purposes [already] commenced in September 2007, spearheaded by the Ministry of Trade and Industry, said Beltone Financial.
“At the end of the three-year period, in 2009, prices of electricity and natural gas will have risen to their cost-recovery level, effectively removing subsidies on energy for heavy industry, [while] light industries were granted a one-year grace period.
Petroleum industry experts expect the government to further raise prices of petroleum products in the period between April and July after recent increase in the price of mazut.
According to Al-Masry Al-Youm newspaper, sources at the Ministry of Petroleum stated that it did not make sense to maintain the price of diesel at LE 600 per ton and not raise prices of other products after the increase in mazut prices.
The sources expected an increase in prices of gasoline as well, excluding 80-octane gasoline.
However, other sources at the ministry rejected these claims, confirming that there are no intentions to increase prices now, especially following the commotion caused by the new mazut prices.
“Despite the conflicting statements, we do believe that the government will move soon on the prices of petroleum products, including diesel and gasoline, to reduce subsidies on the products used by the higher income groups and redirect subsidies to the energy and non-energy products used by low income groups, Beltone Financial told Daily News Egypt.
“We expect the timing to be some time in early 2008, when the level of inflation is relatively lower and seasonal inflationary pressures have run their course.
Sugar has escalated to reach around LE 200 per ton following the increase in mazut prices, since the product is burned chiefly to produce sugar, adding more operational costs on producers.
Mazut is also used in paper factories, which implies that price of paper products will increase by an estimated 50 percent.
In a bid to contain the effects of price hikes, the Petroleum Ministry revealed plans to extend natural gas (which is cheaper than fuel oil) to factories that rely on mazut for production.
