MEIS 2018: What we learned at the North Africa Summit

Fastmarkets MB organized a North Africa Steel Summit on Thursday December 13 in Dubai, which immediately followed the Middle East Iron and Steel Conference.

What follows are the main topics discussed at the summit by two key Egyptian speakers.

1) Egypt has over 13 million tonnes per year of steel production capacity, which according to Nourhan Ashry, vice president at Ashry Steel - Egyptian tube and pipe and rebar producer - the main consumers of steel in Egypt breakdown into:

  • 15% is consumed by the housing sector, while the government targets to build about 1 million housing units, which means 170,000 units per year.
  • 48% is accounted for private builders (contracting companies, contractors, wholesalers, retailers).
  • Special projects supported by the governmental institutions account for 20%.
  • Infrastructure accounts for 17%.

2) Steel production costs in Egypt are very high, mainly because of high natural gas prices.
Egyptian steel producers pay $7 per million British thermal unit (Btu) for natural gas, while it is about $1.30 per million Btu in Saudi Arabia, $2.80 per million Btu in the United States, and $2.60 per million Btu in the United Arab Emirates. Egypt has ongoing exploration going into natural gas and the increased supply of natural gas should reduce domestic prices.

“The steel industry is waiting to benefit from the increase in natural gas production, especially the integrated mills producing direct reduced iron (DRI). Producers are hoping the cost of 1 million Btu will reduce from $7 to around the $4 level,” Ramy Saleh, executive director of business development, El Marakby Steel said during his presentation.

Egypt suffered from a shortage of natural gas in 2016 and 2017, which is when DRI production also decreased.

Egypt produced 2.5 million tonnes of DRI in 2015 and 2.6 million tonnes of DRI in 2016, but production volumes reached 4.7 million tonnes in 2017 and are expected to reach 5.7 million tonnes in 2018, Saleh said.

3) Egypt consumes about 1.2 million tpy of flat steel products and produces 700,000 tpy of flat steel products. For long products, Egypt consumes 7.6 million tpy and local production is 7.3 million tpy.

Egypt has 1.2 million tpy of flat steel production capacity but due to high production costs, producers cannot compete with low priced imports and have had to reduce utilization rates, according to Nourhan Ashry.

During her presentation, Ashry noted that flat-steel producers in Egypt find it difficult to compete in the export markets, again due to their high production costs.

Egypt has 12.7 million tpy of rebar production capacity, but utilizes only 7-7.5 million tpy because of low priced imports and weak demand in the domestic market. Egypt’s national capacity will reach 15 million tpy in 2019, but local demand is unlikely to increase to meet that figure.

In December 2017, Egypt imposed permanent anti-dumping duties on rebar imports from China (at 29%), Turkey (7-22.8%) and Ukraine (17.2-27%) to strengthen its domestic industry.

Yet, Saudi Arabia, who is not subject to any duty, has exported about 300,000 tonnes of rebar to Egypt thus far in 2018.

On November 23, Egypt’s local rebar price was E£12,180-12,198 ($677-688) per tonne ex-works including 14% VAT in Egypt, flat since the end of August, while the retail price of Saudi Arabia-origin rebar was E£12,100 per tonne including 14% VAT.

Some market participants in Egypt have said they expect a 6-10% protective duty to be imposed on billet imports in the near future and a 15% protective duty on other steel products to protect against large volumes of cheap foreign imports entering the market.

4) Rebar consumption is expected to remain mostly unchanged in 2019 in Egypt, according to Ramy Saleh, while flat steel consumption may increase by around 4.9%.

Several projects in Egypt may increase the country’s flat steel consumption, including the new administrative capital, the hydro power plant in Ataka and the El Dabaa nuclear power plant, Ashry said.

Although concurrently, current demand for rebar is subdued in Egypt because of uncertainty surrounding the imposition of a safeguard duty, as well as buyers postponing booking before the year-end.

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