CAIRO: The Ministry of Trade and Industry announced this week its intention to allow the importation of Gulf steel into the Egyptian market in a move that some hope may help further stem the tide of rising steel prices.
The ministry aims to broaden its regulations that govern the types of steel that may be imported. By further including the Gulf make of steel, industry experts expect a significant rise in the amount of steel imported to Egypt.
With the real estate and construction industries booming in Egypt today, demand for steel has been on the rise, which has pushed prices upwards.
Some industry analysts, however, are skeptical that the ministry’s shift in policy will have a dramatic impact on domestic prices.
“I don’t think it will significantly affect the market here, noted Patrick Gaffney, vice president for equity research at investment bank EFG Hermes.
Prior to the decree issued by the ministry, only steel made to Egyptian specification was allowed in the country. The Ministry’s shifting policy will now allow steel to be imported based on the Gulf Cooperation Council (GCC) or international standards.
Steel imports have never been banned or taxed, but their import has typically been infeasible due to other costs.
Reham ElDesoki, economist at Beltone Financial, wrote, “Imports of steel are not banned in Egypt, although freight costs and the production cost advantage of local producers has traditionally kept a virtual barrier to the entry of the product.
International steel prices have been declining recently, and some analysts suspect the ministry’s move was aimed at keeping pace with international prices.
“The point of the exercise is so domestic prices fall in lockstep with international steel prices, said Gaffney. “I have generally felt that international prices will dictate local prices. So the ministry might just be trying to make sure that happens.
Steel prices have recently slid off their dramatic annual high, with a ton of steel from Ezz currently running around LE 6,150. Ezz’s competitors are mostly slightly higher, at LE 6,200-6,300 per ton.
These prices, released at the beginning of September represent a significant slide from their high, which came last month.
Prices then ranged from LE 6,970 to LE 7,750. These prices threatened to derail progress in the construction industry, which was seeing a boom largely thanks to the explosion of high-end housing developments springing up around Cairo.
After a year of stable prices in 2004, steel prices have been increasing steadily. A ton of steel hit LE 3,700 in January of this year before practically doubling over the subsequent eight months.
Energy prices have also played a role in the increase in steel prices. Energy needs account for roughly 10-12 percent of the cost of total steel production, and dramatic increases in the price of oil throughout the first half of this year and into the summer certainly took their toll.
Over the course of 2008, the government has taken a number of steps to try to rein in prices, with the change in import standards being the latest.
Earlier, the government slapped an LE 160 per ton tariff on steel exports. This mostly toothless measure represents, in today’s terms, less than a 3 percent tax.
A shift in the kind of steel it produces also helps curb skyrocketing prices domestically. The industry now exports very little long steel, which is mainly used in building and construction, and it exports more flat steel, which is used more in industry.
By boosting supply of long steel domestically, the industry hopes to remove some of the pressures facing construction companies. At the same time, continuing to export flat steel will insure that Egypt remains an active player on the international market.
There are also signs that the Egyptian government is making a long-term play at reducing steel prices.
In August of this year, the Ministry of Trade and Industry announced a plan to dedicate LE 35 billion towards building new steel, cement, and fertilizer plants.
The ministry also awarded a number of new steel plant contracts in 2007 but it may be as many as three years before the first of those plants begin to come online.
While steel prices continue to hurt consumers domestically, many steel companies have been thriving. Ezz, Egypt’s industry leader, reported a 63 percent increase in net profit in the first half of 2008 over the same period a year earlier.
