Swords cross over steel
While steel companies say that rising production costs are the cause behind soaring steel prices, some legislators blame monopolistic practices. Sherine Abdel-Razek investigates
The People's Assembly witnessed heated debate in a session earlier this week after the government's refusal to distribute a report by the Central Auditing Agency on the production costs and sale prices of reinforced steel for private companies. The government defended its action by labelling the report "confidential", an explanation that outraged many MPs.
The session was the peak of two weeks of lively parliamentary discussions of the problem after the price of steel sky-rocketed by more than 50 per cent during 2003. Market analysts and government officials disagree among themselves about the price hike's underlying causes, with accusations of a monopoly in the steel industry.
After receiving 21 information requests from MPs about the increase in steel prices, Prime Minister Atef Ebeid referred the issue to a parliamentary fact-finding committee to investigate rumours of a cartel of local steel producers.
Egypt's production capacity of reinforced steel comes at around six million tons annually while the actual production hovers around four million tons. Ezz El-Dekheila, owned by steel magnate and Member of Parliament Ahmed Ezz, has a market share of 65 per cent while the rest is distributed among 16 small privately owned factories and four public enterprises, the largest of which are Egyptian Iron and Steel and Delta Steel.
During the same session Ebeid announced a reduction of the customs on steel imports from 20 to five per cent and the complete elimination of anti- dumping duties. Interpreted by several analysts as a tacit admission that monopolistic practices by local producers were raising prices, the move was justified by Ebeid as a means of allowing more imports of cheap steel and regaining balance in the market.
Ebeid announced that the prices of steel will be determined by a ministerial committee, while also calling for a meeting with all contracting companies to determine their demand for steel in the coming year and to agree on fixed prices.
However, only two days later Minister of Foreign Trade Youssef Boutros-Ghali announced that the government will not take off the anti-dumping duties without prior consultation with the WTO, with which Egypt had negotiated the duties.
Boutros-Ghali even declared that the ministry was encouraging the import of steel from any of the 61 steel-exporting countries worldwide, and that it will continue giving help to Egyptian importers.
Still, the government's intervention to control the prices were welcomed by most market observers.
"The government's interference was inevitable as the hike in prices did affect the strategic building materials industry as a whole. The rise in prices pushed up the prices in cement as well. Cement producers feared that the steel price hikes might result in a retreat in the sector's activities and so moved quickly and increased their prices (from LE150 per ton last year to LE250 per ton) to realise quick profits," said Joseph Iskandar, investment analyst at Prime Securities.
While most analysts agree that a major factor was the increase in costs of steel production due to the devaluation of the pound, some laid the lion's share of the blame on local producers' taking advantage of their domination of the market.
"The increase is mostly attributed to the increase in the international prices of scrap and Belite raw materials used in producing the reinforced steel, a fact that was further exacerbated by the devaluation in the Egyptian pound. The devaluation raised the cost of production for companies because 55 to 85 per cent of their costs are denominated in dollars," said Iskandar.
Waleed El-Aiadi, a senior investment analyst at CIBC, cited the rising steel prices on the global market as another factor.
But suspicions of monopolistic practices are still high. "The increase in price is normal as the import regulations allowed the local producers to monopolise the market by taking advantage of a protective 20 per cent customs on steel imports in addition to anti-dumping fees imposed on Egypt's steel purchases from Ukraine, Latvia, Turkey and Romania." said Iskandar.
Iskandar's point is conceded by the owner of a private steel-producing company who asked to be anonymous. "Yes, there is a monopoly and we (some steel producers) are suffering. I will go out of business soon and by soon I mean in two to three weeks and not a matter of months," he said.
Even in the People's Assembly a number of legislators openly accused their fellow MP steel industry magnate Ahmed Ezz, head of the assembly's budget committee, of running a monopoly, and one MP called for him to be barred from the session that discussed steel prices.
Excerpts from the Central Auditing Agency report were leaked and published by Al-Wafd newspaper, which said that while the costs of production in Ezz El-Dekheila increased by 91 per cent during 2003 due to the increase in raw materials costs, the company was the only steel producer to make profits during the year. The company realised profits of LE239 per ton through the period from July to December 2003 compared to LE66 per ton in the previous six months.
El-Aiadi disagreed with the widespread belief that Ezz El-Dekheila was monopolising the steel industry. "Out of Egypt's overall steel production capacity of six million tons, Ezz El-Dekheila has a capacity of 2.7 million tons which could be compensated for if we lost it, and thus it cannot monopolise the market alone."
"The main problem is the hike in both raw materials and international steel prices. The government's moves will not end the problem, because the only way out is a decline in steel prices internationally," El-Aiadi added. He also asserted that taking off the anti-dumping duties will threaten local steel production.
The duties were imposed in 2000 amid a depressed global pricing environment and a local increase in capacity with new private companies entering the market. The anti-dumping duties helped in tightening the imports. Egypt's reinforced steel imports declined from 440,000 to 32,000 tons from 1999 to 2002.
