CAIRO: El-Ezz Steel Rebars, Egypt’s giant steel producer, added this week an extra LE 370 per ton to bring wholesale steel prices to LE 4,170 per ton and consumer prices to LE 4,800 per ton.
This is the company’s third price increase since the beginning of the year. The firm -which currently controls a solid 68 percent of the market – has been abruptly rising to unprecedented highs since January. El-Ezz Steel officials 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 said that international indicators point towards further hikes in the price of raw billet, predicting it would exceed 40 percent this year.
Experts echo a further price increase in domestic prices. Beltone Financial expected iron ore prices to rise at least 35 percent this year and ten percent in 2009.
“As is the case with cement, steel demand is expected to grow in the double digits in 2008 on [growth in] infrastructure and real estate investment, the company said in a report released several days ago.
“International iron ore and scrap costs, to which El-Ezz Steel Rebars is exposed, are expected to also increase significantly this year. So far, global steel giants have detailed plans to increase prices this year; and [consequently] El-Ezz Steel Rebars announced a seven percent rise in ex-factory prices at the start of 2008 and is expected to be able to pass on further rising costs in the near term.
“The issue of hikes in steel prices has been [searing hot] for a long time now in Egypt, especially amid accusations of monopolistic practices by El-Ezz Steel, which controls more than half of the market share, explained Magdy Sobhy, senior economist at Al-Ahram Center for Strategic Studies.
“The [company] says these price increases are due to an increase in costs of production and prices of raw material. However; until now, the reason behind these upsurges is not clear because investigations in the case have not been finalized, he added referring to the investigation into possible monopolistic practices that is being carried by the Antitrust and Competition Protection Commission (ACPC).
Major steel producers were suspected of monopolistic and anti-competitive practices as well as gratuitously soaring market prices and were thus referred to the ACPC for investigation. Results of the inquiry were due last December, however, they have been postponed since then.
The current delay caused speculation that there was pressure from iron and steel producers to close the investigations. Fingers pointed to Ahmed Ezz’s political influence, claiming that being a member of the National Democratic Party enabled him to raise prices to maximize profitability and accused him of using his political ties to close the current investigation.
Minister of Trade and Industry Rachid Mohamed Rachid, however, refuted these allegations, confirming that the ACPC will continue to investigate practices in the iron and steel sectors. He guaranteed that if laws were broken, action would be taken.
It is still not clear, Sobhy pointed out, whether steel producers would be cleared or referred to the public prosecutor, similar to what happened with cement producers.
Experts in the sector called recent price hikes unjustified in light of rising world prices and domestic “scrap prices. “Domestic price increases are not consistent with international hikes, Sobhy stated. “If international prices rose, let’s say, ten percent, domestic prices soared 20-30 percent.
He added that international price surges have “excessively been used as an excuse to raise prices on the market. “Steel prices in Egypt have been escalating for a year and a half now.
Analysts expect hikes in steel prices to touch upon the entire housing and real estate sector, which has lately been skyrocketing especially after the entrance of Gulf developers such as Emaar and Damac into the market.
“Prices of property have consequently been on the rise. Previously, an apartment would cost an average of LE 1,100 per square meter. Nowadays, that same apartment costs around LE 2,500 per square meter. This means that prices have more than doubled in less than two years, explained Sobhy.
Being the largest steel producer in the Middle East and North Africa, with a consolidated capacity of 5.3 million tons per annum, has put El-Ezz Steel Rebars on the spotlight. Valued at LE 16.1 billion ($2.9 billion), the enterprise reported that revenues until third quarter of 2007 have shown a 52.1 percent year-on-year increase to reach LE 11.99 billion, amid expectations of further greener years.
El-Ezz Steel Rebars has recently made new investments both locally and regionally. The company was among four steel producers recently awarded licenses to establish new steel operations in Egypt. It was granted a license to establish a new plant in Suez with a capacity of 1.7 million tons per annum at a total investment cost of $270 million.
The company will also construct a new melt shop with an annual capacity of 1.35 million tons at a total investment cost of $250 million. In addition, El-Ezz Steel is to set up a greenfield plant in Algeria with an annual capacity of 1.5 million tons per annum in phase one and double that amount in phase two of the project. Investment cost of the first phase is estimated at $750 million. The company’s total capacity is expected to reach 8.1 million tons per annum in 2012.
