Ezz Steel said the decision to reduce the price of natural gas will positively affect the company, where its gas consumption amounts to 11m BTU per tonne of the final product, thus reducing the price from $7 to $5.5 per million BTU, will reduce the gap between production costs and sales, according to the company’s Monday statement.
According to research by Prime Securities, the shares of Ezz Steel and Al Ezz Dekheila Steel (EZDK) are among the main beneficiaries of the decision, where they rely on natural gas as a source of energy in the production of direct reduced iron (DRI), and the production of a tonne of DRI requires about 11m BTU of natural gas.
An official source in Ezz Steel said the decision to cut natural gas price by $1.5 per million BTU would reduce costs by about $70-75m a year, adding that this would generate EGP 1.173m profits for the company.
However, he urged the need for large tariffs on imports of pellets and iron by more than 42% in order to maintain the current price levels.
Meanwhile, Egypt Aluminum (EGAL) said it consumes 32-34m cm of natural gas annually at a value of up to EGP 145m, hence, if the price of gas falls to $5.5, the total cost will be down to EGP 114m, which saves about EGP 31m for the company.
Prime said the cost of DRI production will decline by about 21.4%, which will reflect positively on the two companies.
The porcelain industry will also be positively affected by this decision, especially Al Ezz for Ceramics and Porcelain – Gemma (ECAP) and Lecico.
The porcelain industry will also be positively affected by this decision, especially Al Ezz for Ceramics and Porcelain – Gemma (ECAP) and Lecico.
As for the cement sector, Prime believes that while positively affected by the decline in the price of gas, the decline in demand and oversupply will limit the positive impact on the shares of cement companies in the stock market.
The aluminium and copper sectors will also see a limited impact of gas price movement on the total manufacturing cost because they rely primarily on electricity.
It should be noted that the cement sector is going through a difficult situation during the current period, which was largely reflected in the profitability loss experienced by companies, mainly from those who announced their temporary suspension, like Tourah Portland Cement, which recently announced its temporary suspension. National Cement Co. has also been liquidated.
Prime Minister Mostafa Madbouly said in a statement last Thursday that a review of these prices will be conducted every six months, in light of changes in world prices and economic and social variables.
Kamal Desouki, vice president of the Building Materials Chamber of the Federation of Egyptian Industries, said that the reduction in gas price is not a subsidy, but came in line with to liberalisation of gas prices.
He added that the lower gas price reduces the cost and the price of the final product, which has a positive impact on stimulating sales movement.
