On the rise
Ezz Steel Rebars, Egypt's largest steel producer, announced this week that it is raising the price of rebars by LE200 starting Tuesday to sell at LE3,000 per tonne. Steel rebars are used in construction. Before this announcement the price of rebars had been at its lowest level compared to mid- 2008 when prices hit LE8,000 per tonne.
Since July 2008 steel prices have been on a downward trend augmented by the slowdown of the global economy. The price increase now has been attributed to hikes in the price of international raw materials that go into the manufacture of steel rebars. According to CI Capital Research (CICR), around 85 to 90 per cent of the raw materials are imported.
"The slowdown in global demand drove international raw materials prices down since July 2008, with pig iron and scrap prices dropping by 74 per cent and 69 per cent respectively over the months September 2008 to June 2009. Consequently, a sharp decline of 58 per cent occurred in local rebars prices during the same period." CICR also pointed out that over the last two months the price of pig iron and scrap increased by an average of eight per cent and 20 per cent respectively.
Mahmoud Fawzy, quality manager at Al-Omrania for Steel Trade, does not believe the increase in rebars price will negatively affect business. From experience, Fawzy has noticed that in Egypt when the price of rebars goes up people scramble to buy, fearing that the price will continue to rise, particularly since steel represents 35 per cent of the cost of construction. "This does not happen when the price is low," he said, adding, "We did the best business when the price was at its highest, at LE8,000."
Fawzy does not believe the steel price increase will affect the construction boom either. He acknowledged the cost of the end product -- buildings -- will increase, but it will not mean putting off plans to build.
Despite the price increase, Patrick Gaffney, vice- president for equity research at investment bank EFG-Hermes, expects prices to be fairly stable for the remainder of the year, with small fluctuations. He believes it unlikely in the foreseeable future that prices bounce back to LE8,000 levels, "given a great deal of capacity worldwide that is being left idle".
Gaffney, too, does not expect the new price to affect construction. "Given that the price is still relatively low compared to last year, we do not think it will impact construction." However, he said if prices rise to the levels of 2008, "that would present significant difficulties for construction companies".
Astronomical prices coupled with strong demand in 2008 triggered the government to allow the import of steel. That, according to Gaffney, helped absorb excess demand not being met in the local market. He added that, "in the first half of the year it kept prices lower than they probably would have been and more in line with world prices."
It is estimated that Egypt imported some 2.3 million tonnes of steel during the first six months of 2009, mostly from Turkey. Imported steel is today selling at LE2,900 per tonne -- not too far off the price of Egyptian produce. The decision to open up to imports at the end of 2008 was aimed at bridging the gap between local production, which stood at 4.9 million tonnes in 2007, and local demand, estimated at six million tonnes in 2008.