High costs, lack of safeguards reduce earnings in Q1, Ezz Steel says

Ezz Steel suffered from low steel prices in the first three months of 2019, it said. This resulted in consolidated earnings before interest, taxes, depreciation and amortization (Ebitda) falling to E£236 million ($14.18 million) for January-March, down by 86.79% compared with E£1,787 million for the corresponding period in 2018.

The company’s net earnings, after tax and minority interests, showed a loss of E£1,082 million in the first quarter of 2019. This compared with a loss of E£67 million in the same months of 2018.

In December 2017, Egypt imposed anti-dumping duties on rebar imports from China, Turkey and Ukraine for a period of five years. This boosted local demand and lent support to domestic prices.

The country has also imposed a temporary additional duty on imports of billet and rebar, which came into effect in April 2019.

But Egypt’s Administrative Courts suspended the decision to impose safeguard duties on imports of rebar and steel billet on July 4.

Egyptian mills appealed against the suspension of this duty on July 7.

In Egypt, the company said, prices for both long and flat steel products have started to decline in both the domestic and export markets, marking the first significant quarter-on-quarter decline in the price environment for 18 months.

Long steel export prices were down by 6% year-on-year in the first quarter of 2019 to E£9,590 per tonne, while flat steel export prices fell by 6% to E£9,947 per tonne.

But in the first quarter of 2019, Fastmarkets’ weekly assessment of the price for steel reinforcing bar (rebar), domestic, exw Egypt, averaged E£11,787.69 per tonne including 14% VAT. This was down from E£12,182.46 per tonne in the first quarter of 2018.

The weekly price assessment for domestic rebar was unchanged on July 4 at E£11,580-11,980 ($696-720) per tonne including 14% VAT.

Over the first quarter of 2019, Ezz Steel produced 897,000 tonnes of long steel products, up by 5% year on year. The company sold 912,000 tonnes of long steel products in January-March 2019, up by 4% from the 876,000 tonnes sold in January-March 2018.

Ezz Steel produced 310,000 tonnes of flat steel products in January-March 2019, a 5% fall from production in the same period of 2018. But flat steel sales increased by 5% to 318,000 tonnes.

The group’s consolidated sales volumes totaled 1.23 million tonnes in January-March 2019, 4% more than the 1.18 million tonnes sold in the first three months of 2018.

“During the first quarter of 2019, contrary to all expectations and despite a robust industrial performance in all Ezz Steel plants, we registered a deterioration in our financial results,” Ezz Steel chairman and managing director Paul Chekaiban said.

“The first reason [for this] was the continuing absence of any safeguard measures in Egypt, which led to a major decrease in the selling price of our finished products during the first quarter of the year,” he said.

“The second reason was the [high] price of natural gas, the increasing price of electricity, and the exceptionally high cost of funding, all of which remained at much higher levels compared with our global competitors,” he added.

“The third reason was the accidental collapse of a tailings dam at a Brazilian mine [owned by] Vale, the main worldwide supplier of iron ore, [an event] that provoked a sharp surge in the price of our main raw material,” he said.

“In the coming months, we expect a gradual relief of these exceptional adverse circumstances,” he concluded.

Brazilian iron ore producer Vale halted part of its operations in the southeast Brazilian state of Minas Gerais following the rupture of a tailings dam on January 25. Around 93 million tonnes per year of output was lost.

Fastmarkets’ index for iron ore 62% Fe fines, cfr Qingdao, was $74.71 per tonne cfr China on January 24, 2019, and reached as high as $125.77 per tonne cfr on July 2. It was $120.96 per tonne on July 10.

The index averaged $82.41 per tonne cfr on the first quarter of 2019, compared with $74.39 per tonne cfr in the first quarter of 2018.

Demand for steel in Egypt is currently weak because of the uncertainty about safeguard duties as well as slow construction activity.