Abstract
Government stimulus programmes, with their focus on infrastructure and
construction, will help sustain
Egyptian steel consumption growth in 2009,
but BMI’s latest Egypt Metals Report states that this will
mostly
benefit cheaper foreign producers while domestic producers will see their
sales stagnate or fall.
In the first four months of 2009, crude steel
output was down 23.5% year-on-year (y-o-y) to 1.71mn
tonnes. However,
March and April saw a recovery from a low of 397,000 tonnes in April, with the
rate of
decline in output at 16.4%. Other data suggests that the domestic
market is lingering in a trough. The
modest uptick in crude steel output
in Q209 came amid government efforts to prop up growth through
infrastructure projects. We predict that construction sector growth will be at
or slightly above 5.0% in real
terms in 2010, but there is a significant
danger that domestic steelmakers will lose out to cheaper imports.
This is
reflected in BMI’s forecasts for crude consumption growth, of 0.8% to
8.7mn tonnes, while
finished steel consumption is forecast to grow by 3.9%
to 6.87mn tonnes.
Growth in demand may not necessarily lead to concurrent
growth in output. Domestic producers are
struggling to keep up competition
with cheaper imports and their market share is set to shrink in 2009.
Over
80% of imports will be rebar. However, Egypt’s Ezz Steel still felt it
necessary to raise rebar prices
for May production, passing on recent
increases in ferrous scrap and billet prices. BMI expects the
demand for
rebar to drop off further in H209 as construction activity, fuelled by
government incentives,
moderates. Consequently, BMI forecasts that hot
rolled product output will fall 1.9% to 6.53mn tonnes,
with most growth in
consumption served by imports. The influx of cheap steel products from abroad
will
lead to a 9.8% rise in imports of steel semis and finished products
to 3.28mn tonnes.
While steel consumption is likely to hold up, domestic
production will suffer. Speaking to Reuters in June
2009, Ezz
Steel’s marketing director George Matta said: ‘Local producers
lost 35 percent of the market
share in Egypt to imports in 2009. This loss
was unavoidable as production capacity couldn’t keep up
with the
surge in demand.’ Ezz Steel said it expected H209 demand for rebars to
be 3.3mn, down from
3.9mn in H109. The company also forecast its total
production for the year would remain steady at 5.3mn
tonnes. BMI believes
that the company could still see a moderate decline in longs output in 2009,
while
flats will suffer a sharp-slowdown.
Beyond 2009, BMI believes
the momentum should pick up from 2010, with the annual crude steel output
growth rate peaking at 13.8% in 2011 as pent-up demand is released. By 2013,
crude steel output should
reach 8.23mn tonnes, up a third over the level
estimated for 2008. Meanwhile, hot rolled production will
rise by just
under 30% over the period to 9.07mn tonnes. The growth in output will not be
enough to
satisfy domestic demand for finished steel, which is set to
accelerate by 65% over 2008-13 to 10.48mn
tonnes. As such, imports are
forecast to rise by 77% over the period to 5.27mn tonnes in 2013.
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