El Ezz steel's latest price hike proves company's pricing power, says analyst

Sherine El Madany
5 Min Read

CAIRO: Egypt’s giant steel producer El Ezz Steel Rebars announced Tuesday it would raise its ex-factory selling prices for long products (rebars) and flat products starting April 1.

Company officials could not reveal exact price increase before press time, however, news leaked that the company raised an extra LE 630 per ton to bring wholesale steel prices to LE 5,210 per ton and consumer prices close to LE 5,630 per ton.

This is the company’s third price increase since beginning of the year. The company, which controls a solid 65 percent of the market, has been steadily raising prices since October.

El-Ezz Steel officials have repeatedly justified domestic upsurges in the sector to leaps in international markets and rises in prices of raw material, which “directly affected production costs. The company stated that international indicators point towards further hikes in the price of raw billet, predicting it would exceed 40 percent this year.

“The fact that the company is able to make yet another increase in prices confirms our view that 2008 is – and will continue to be – a year of strong pricing power for the company, on higher local demand, which eases the effects of higher [international] costs, commented Beltone Financial.

The same pricing momentum is expected to persist throughout the year. As steel prices are currently searing hot on the market, with some retailers lifting prices to LE 6,000 per ton in Cairo and Alexandria, prices upsurges have also mirrored on the housing and real estate sector.

“Rising prices of construction material presents a predicament in Egypt, recently said Hisham Talaat Moustafa, Egypt’s heavyweight real estate developer. “Within the last year and a half only, apartment prices have soared 80 percent.

He explained that from 1996 till 2006, dwelling prices increased an average of 15 percent per year. However, starting 2006 to last February, prices surged from LE 2,500 per square meter to LE 4,000.

“Steel [producers] play the game very well. They say it’s due to rises in international prices, Moustafa continued. “These producers [benefit from] subsidized energy, cheap labor, and cheap land compared to international prices, but at the end of the day, they sell at prices compatible with international markets.

“They have to respect the purchasing power of Egyptians. They can’t put prices at the same levels with the US or Europe. It is their corporate social responsibility to sell at prices.that match income levels in Egypt, he said.

It is the government’s duty, he said, to balance between costs of production and prices of commodities sold on the market. “Or else, we will step into an economic crisis.

Meanwhile, investigations into monopolistic and anti-competitive practices in the steel sector are pending. Findings of the investigations were due last December, but have been delayed since then.

“We are currently finalizing our inquiries, and findings will be out within a month, more or less, said Ibrahim Abdel Reheem, head of media relations at the Antitrust and Competition Protection Commission (ACPC).

“Investigations into such important sectors as construction usually take a long time ranging between two to four years in most countries, he added. “to prove whether or not monopoly exists in a sector takes a long effort.

The commission embarked on its investigations into both the steel and cement sectors July 2006 based on a request from Trade Minister Rachid Mohamed Rachid after prices surged on the market.

“Our research and investigations into the cement sector were quicker because it was quite obvious that there was a cartel among cement companies. However, in the case of the steel sector, it is not that obvious, explained Abdel Reheem.

The government – embodied in the Ministry of Trade and Industry – filed last October accusations of anti-competitive practices against local cement producers after a 14-month probe by the ministry’s ACPC. Consequently, trial of 20 Egyptian cement company executives on price-fixing charges began February, in the first case of its kind under Egypt’s anti-monopoly law.

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