"Egypt Metals Report Q2 2011" is now available at Fast Market Research

March 30, 2011 - PRLog -- The political unrest in the first few weeks of 2011 will have major repercussions for the domestic steel market and local steel production, but BMI expects stability in the long term to put the local steel industry on course for 50% growth over 2010 levels by 2015.

In 2010, Egyptian crude steel output grew by around 21.1% year-on-year (y-o-y) to 6.68mn tonnes, according to the latest figures from the World Steel Association. This was well up on BMI's estimate of 6.31mn tonnes due to a strong performance in Q410, which achieved a record high in quarterly output at 1.83mn tonnes (up 13% q-o-q and 27% y-o-y). Output was lifted by export growth of 77% to around 960,000 tonnes, as well as 18% growth in domestic finished steel consumption to 8.50mn tonnes.

The unexpected rise in political unrest in early 2011, the toppling of the Mubarak regime and its replacement with an interim military junta has prompted us to revise our forecasts. The unrest saw strike action affect Egypt's industrial sector, including the steel industry, as well as disruption to port activities, notably in Alexandria and Suez. By mid-February 2011, the Egyptian Iron and Steel Company declared that its sales volume fell by EGP160mn since the beginning of disturbances in late January due to its inability to produce and meet its export commitments. It said its sales for the first two months of the year would be down 30,000 tonnes in volume and would not be able to produce 10,000 tonnes destined for export, totalling EGP40mn. Ezzsteel also said its plants reduced operations due to the logistical impact of the government curfew, although its chairman and largest shareholder Ahmed Ezz, who was a supporter of the Mubarak regime, was put under investigation for alleged involvement in vote-rigging and prevented from leaving the country.

Most steel mills had restarted normal production soon after the end of major demonstrations in February. While the devaluation of the Egyptian pound meant that imports fell drastically, the resumption of port operations meant that exports were quickly returning to normal. Sustained political stability will be crucial to the operation of the domestic steel industry as well as maintaining a market for domestic steel output.

Before the unrest broke out, BMI had anticipated that the Egyptian metals market would be held back by relatively low domestic demand in 2011, compounded by a downturn in demand in Europe and expansion in output in Turkey and the Middle East undermining exports. BMI forecasts 2.7% growth in domestic finished steel consumption, down from 18.1% in 2010, to 9.04mn tonnes in 2011. Much of the growth in output in 2010 was driven by collapsing imports, and the one area of consistent improvement throughout the year - exports - was under threat from a renewed slowdown in developed economies and global trade. This effect will be countered to some extent by the fall in the value of the Egyptian pound, which should enable Egyptian producers to compete more effectively with their Turkish rivals. BMI expects 27.5% growth in semi-finished and finished steel exports to 1.34mn tonnes in 2011, leading to 3.8% growth in crude steel output to 7.09mn tonnes.

There are medium- and long-term uncertainties over the implications of both military rule and a possible post-revolution democratic government. Leveraging Egypt's metals industry to its full potential still very much depends on attracting concrete multinational interest, which means policy in the post-Mubarak era will be crucial to determining the rate of long-term output growth. The political situation is too fluid to provide an accurate assessment of the effects of potential political scenarios on the steel industry and investors are concerned about the prospect of a government that is hostile to economic liberalisation and capitalism.

The country has been operating well under full capacity, with a utilisation rate of just 78% of its 8.8mn tonnes per annum (tpa) potential. Even without further capacity expansion, Egypt has the potential to grow by over 30% from 2010 levels using currently operating plants. Despite the effects of political instability in the short term, BMI still expects annual crude output to reach 11.2mn tonnes by 2015. Although this represents a 72% increase over 2010 levels, it will still not be enough to cover domestic demand, which is set to grow by nearly 50% to around 13mn tonnes in 2015.

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Fast Market Research is an online aggregator and distributor of market research and business information. We represent the world's top research publishers and analysts and provide quick and easy access to the best competitive intelligence available.