CAIRO: Ezz Steel, along with Egypt’s large steel producers, kept retail prices unchanged this month, reacting to recent tax increases starting July as well as future expectations of higher electricity prices later on in the year.
According to the state-run Al-Ahram newspaper, Al-Ezz Steel Steel Rebars lowered its July 2010 ex-factory prices (excluding taxes) by LE 100 per ton compared to last month. Retail prices were kept the same as last month given an increase in sales tax to 8 percent from 5 percent, which went into effect starting July.
According to ArabSteel website, other Egyptian companies have also announced unchanged rebar prices.
“Ex-works rebar price per ton including the new taxes reached LE 3,550 for Ezz Steel, LE 3,500 for Beshay Steel, and LE 3,400-3,450 for other companies,” said ArabSteel in an update.
The companies all paid for the increase of around LE 100 per ton instead of raising prices for consumers.
ArabSteel said that this procedure was a response to poor demand, combined with large amounts of imported rebar.
“This has driven the Metal Industries Chamber of the Industrial Union to demand a stop of imports,” the website reported.
Muhammad Hanafi, head of the chamber, told ArabSteel that "the supply of rebars is larger than the demand" and "stocks in local mills now amount to 1.5 million tons in addition to more than 300 kilo tons in the warehouses of the distributors."
He also anticipated Turkish imports to strongly return to the Egyptian market, as "Turkish rebar is sold to traders at a price lower than the local one by around LE 200."
According to Al-Ahram, Egypt’s steel manufacturers will soon be affected by the government’s decision to raise electricity prices by 50 percent during peak hours.
HC Securities commented on the potential effects this might have on Egypt’s largest steel manufacturer.
“The drop in ex-factory steel prices is in line with our estimates. Peak hours represent 20 percent of total daily operating hours. According to management, any maintenance shutdown at the plants will now take place during peak hours to avoid operating during that period of the day,” said HC Securities in a statement.
“Hence, we estimate that the electricity price increase will have a minor impact on Al-Ezz Steel’s cost of goods sold,” the statement added.
The company said that it will fully pass on this increase in costs to consumers.
“If Ezz Steel fails to fully pass on the increase in electricity prices to finished products, our 2010 expected EPS estimates will drop by 4 percent and our target price by 2 percent,” the statement concluded.
Samir Naaman, executive officer of Ezz Steel, said that the reasons for keeping the ex-factory prices the same, with the company carrying the full tax burden itself, is for the consumer to be able to afford the prices and to maintain demand.
“This is due to a current weakness in the market,” said Naaman, explaining that the prices would remain the same until the market stabilizes and demand increases.
“When consumers buy our steel it does not matter to them what percentage of the price goes to taxes and electricity bills but just the final retail and wholesale price,” Naaman explained.
He said that the company expects the prices of electricity to go up before the end of this year; and it will affect the prices as it affects the costs of goods sold.
Naaman was skeptical that the company would be able to manage the increase in energy prices as he explained that any delay in factory output, due to more shutdowns for example, translates into a loss.
“Eventually the prices will go up, due to the taxes, higher energy prices, and a strengthening market,” concluded Nomaan.
