A recent report issued by HC Securities said market dynamics are unfavourable locally and abroad for Ezz steel.
“We had expected the heightened global steel margins of early 2018 to taper off before normalising at a slightly higher level by the end of our forecast horizon. Nevertheless, international trade tensions and protectionist measures saw the correction happen earlier than we had anticipated, with Turkey rebar prices in particular significantly affected,” the report noted.
This coincides with the continuation of a tight DR-grade pellets supply and higher-than-expected local cost inflation.
In a bid to protect margins, local steel producers have consistently utilised the rebar protective tariff to the fullest, and maintained local rebar prices long after the slump of benchmark prices.
“However, uncertainty about the sustainability of these price levels as well as subdued local demand took a toll on sales volume, and the group saw its inventory levels spike across the board,” the report added.
The report also noted that integrated producers are now in official talks with the Egyptian government over alternatives to support the industry, including reducing the price of natural gas and imposing a higher rebar protective tariff, possibly on a blanket basis, as well as a tariff on billet imports.
“We believe the government will concede to 1 of the 2 options, but opt not to include either in our numbers until then. While a billet tariff would mean higher import costs for ESR and EFS should the latter up its rolling mill utilisation rate (USD1/ton of finished ton sold for every 1%, all else constant),” the report explained.
Meanwhile, the Middle East and North Africa (MENA) region is expected to see as much as $80bn in hard currency-denominated bonds and sukuk issues this year, according to a white paper co-authored by Emirates NBD Asset Management, KAMCO Investment Company and Fisch Asset Management.
Foreign-currency bonds and sukuk sales in MENA stood at $84bn in 2018, with a growing demand for new debt issues as regional debt was oversubscribed by 2x-2.5x, the paper entitled “MENA debt: an evolving world for fixed income investors” found.
Demand is expected to remain high in 2019 as GCC bonds are included in the JP Morgan EMBI index series, it said.
Since the beginning of 2019, the GCC countries have delivered $9.1bn in bond and sukuk issuance from both sovereigns and corporates, including the Saudi sovereign, First Abu Dhabi Bank (Sukuk) and Dubai Islamic Bank (AT1), it added.
State-run Saudi Aramco is also expected to issue debt notes in the second quarter of 2019 to finance the acquisition of its stake in the Saudi Basic Industries Corp (SABIC).
Regional gross government debt surged from 29.7% of gross domestic product (GDP) in 2014 to 44.4% in 2018, after a series of issuances, KAMCO Investment Company’s head of investment research said.
“Fiscal deficits for most MENA countries have been the reason for an increase in government debt, and this trend is expected to continue in 2019,” Faisal Hasan explained.
In 2018, GCC fixed-income secured a safe haven during a sustained emerging market sell-off period, the CFA, director Fixed Income at Emirates NBD Asset Management highlighted.
As for this year, Parth Kikani said that “risks are more balanced” as investors will need to be more conscious in credit selection.
