CAIRO: The government rejected an attempt by the cement industry to raise prices based on sustained high demand, according to news reports.
Suez Cement, a subsidiary of Italian company Italcementi, and one of Egypt’s largest cement producers, planned to charge LE 22 more per ton, raising its price from LE 433 to LE 455. Amreyeh Cimpor Cement Co, a subsidiary of Portuguese company Cimpor, had contemplated a similar price hike.
The Ministry of Trade and Industry issued a “warning, according to ministry official Hesham Ragab, against potential increases.
Rising prices have elicited complaints from the public in the past. In addition, efforts to maintain Egypt’s position as a competitive cement producer likely prompted authorities to keep the price low, explained Ismail Sadek, head of construction and building material research at investment bank Beltone Financial.
In addition, as one of Egypt’s most profitable industries, fluctuations in cement price can affect the entire economy.
“Given the profitability of the cement industry, the government intervenes [in preventing price increases] in order to prevent increased inflation, Sadek said.
“Certainly this [price freeze] will have a negative impact on the cement industry and on the investment flows in the industry, he went on, but with demand remaining strong the industry doesn’t have much cause for complaint.
In related news, the Ministry of Trade and Industry is considering supporting the steel industry with anti-dumping measures, in light of the 50 percent decrease in production of Egyptian steel due to price competition from Turkish steel makers.
Minister of Trade and Industry Rachid Mohamed Rachid met with his Turkish counterpart in Cairo last week and responded to concerns of cheap Turkish steel flooding the Egyptian market. “There is. research going on about dumping. We are looking at all legal procedures, Reuters quoted the trade minister.
In both the case of cement and steel, the government strives to maintain Egypt’s position as a competitive producer of construction materials for both domestic and international buyers, while supporting two of the country’s most lucrative industries.
“[This is] a conflict between local and international producers. This has always been the case. Sadek pointed out.
Low scrap costs globally have benefited Turkish steel producers, but are also enjoined by Egyptian producers. Sadek clarified that Egyptian steel producers operating with electric arc furnaces (EAC), such as Egyptian steel magnate Ezz Steel, are able to sell at globally competitive prices. But those still using “out dated methods, namely blast furnace production, are likely to flounder.
EAC furnaces requires less energy and can vary their production to meet demand, whereas with blast furnaces smelting cannot cease.
“Competition will continue, and Egypt is one of the most resilient markets, Sadek went on. “Steel consumption rose by 50 percent in 2008/09. We expect this increase to maintain, albeit at a lower pace. All producers are eying this country as a potential export hub. Ezz [Steel], through their optimization plan, will be able to sustain market share, or at least their profits.
Sadek explained that for both the cement and steel industries, the government is unlikely to step in to protect Egyptian industries from foreign competition: “[The government] wants to make a market where prices are lowest. And real estate developers find materials are cheapest from here.
Sadek forecast strong construction growth for 2010, based on domestic steel and cement consumption as lagging indicators, “but probably not at the pace of 2009 which saw consumption rise at rates of 20 to 30 percent.
Sustained demand for housing, particularly in the delta and outskirts of Cairo, as well as stimulus package-driven infrastructure projects will see construction continuing apace.
Sadek explained that 2009’s high construction levels represented an echo of the 2008 boom, as real estate developers continued to carry out projects planned prior to the financial crisis.
Egypt’s relative immunity from the credit crunch, and developers willingness to accommodate customers’ anxieties with flexible payment plans and smaller units. The organic need for housing, driven by population growth, Sadek contrasted Dubai, where demand evaporated with the availability of cheap credit.
