Market Report, "Egypt Metals Report Q4 2010", published

Oct. 7, 2010 - PRLog -- The Egyptian steel industry has proved to be resilient in the face of the recent slowdown in global steel consumption, according to BMI's latest Egypt Metals Report.

In the first seven months of 2010, Egyptian crude steel output grew 14.8% year-on-year (y-o-y) to 3.14mn tonnes. Output did not follow the downward trend seen globally after May and by July, monthly production reached 557,000 tonnes, the highest level since April 2008 and 21.9% up on the previous July. There was a growing sense of optimism about the steel industry in mid-2010, with Ezz Steel's marketing director George Matta forecasting domestic rebar demand of 7.4mn tonnes, fuelled by residential housing demand. According to Matta, hot-rolled coil production could grow to as much as 2mn tonnes as a result of improvements in both local and export demand. Matta indicated that growth in the Egyptian, Middle East, North Africa and the US would offset the slowdown in European demand caused by the eurozone debt crisis.

However, steel prices lagged behind the market recovery and remained under pressure despite increased demand. Prices for steel in Egypt have stabilised, but that has been attributed to the rise in raw materials rather than a rise in demand. Large producers in Egypt were keeping retail prices unchanged in July and resisted buyers' demands for lower prices, following a reduction of around 8% in June and 7.5% in May. Producers are mindful of the effects of a sales tax increase from 5% to 8% in July, as well as expectations of higher electricity prices later on in the year, the costs of which BMI expects will be passed on fully to the consumer. Prices are likely to remain constant until the market stabilises and demand increases.

Ezz Steel, Egypt's leading steelmaker, has forecast that production of finished steel products in Egypt will exceed 9.5mn tonnes during 2010, with long products representing 83% of the domestic market and flat products the rest. Long products are expected to account for the largest part of the increase. The basis of the forecast is an anticipated large rise in apparent finished consumption to around 9mn tonnes. However, trends in H110 suggested a levelling off of demand and output, prompting BMI to forecast apparent finished steel consumption growth of 16% to 8.37mn tonnes, with domestic crude unlikely to exceed 6.0mn tonnes (up 13.6%) and hot rolled output reaching 6.7mn tonnes (up 12.5%). This is a downward revision of 6.4mn tonnes crude output forecast in the previous quarter. Nevertheless, this still exceeds pre-recession levels and compares favourably with the steel industry worldwide.

The country has been operating well under full capacity, with a utilisation rate of just 65% of its 8.8mn tonnes per annum (tpa) potential. Even without further capacity expansion, Egypt has the potential to grow by over 50% using currently operating plants. BMI expects annual crude output growth should be sustained at 10-14% with 2014 volumes set to near 10mn tonnes. Although this represents an 88% increase over 2009 estimates, it will still not be enough to cover domestic demand, which is set to grow by over 70% to around 12.44mn tonnes in 2014. A factor likely to support this trend is the government's new stimulus package, with EGP11bn announced in January 2010 following injections of EGP15bn in October 2008 and EGP8bn when the budget was announced in June 2009. However, its effect on the steel sector is dependent on the time span between the allocation of money to an infrastructure project and the commencement of work on it. A strong recovery in flats from 2011 should assist the steel industry's recovery over the rest of the forecast period. Growth in demand may not necessarily lead to concurrent growth in output. Domestic producers are struggling to compete with cheaper imports and their market share is set to shrink.

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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.