Political stability expected to kick-start economy and give impetus to stagnant projects market
Egyptian steel demand is expected to grow by 2.5 million tonnes a year (t/y) over the next five years as Cairo ramps up infrastructure spending as part of a $4.5bn stimulus package aimed at kick-starting the sluggish economy.
The news will be welcomed by the North African states steel producers. The economic slowdown brought about by political instability meant that consumption has slumped by 6 per cent year on year in 2013. The drop in consumption forced Cairo into introducing a 6.8 per cent import tax in late 2012 that expired in June 2013.
The Middle East projects tracker MEED Projects states that there are $50bn worth of construction and infrastructure schemes at various pre-execution phases in Egypt. All of these schemes will require huge volumes of steel.
However, just over $42bn worth of projects are at the study phase and only $1.15bn are at the main contract tender stage. This suggests that there is huge volumes of work in the pipeline and there is still an enormous stagnation in the Egyptian projects market.
This is a direct result of the turmoil brought about by the Arab spring in 2011. Many banks are reluctant to provide project finance for schemes in Egypt and in 2013 Egypt has had to rely on aid from its Arab neighbours. This has included financial aid as well as natural resources such as oil and gas
Egyptian steelmaker Ezz Steel is predicting that forthcoming elections in the first quarter of 2014 should go some way into restoring political stability in the country. The company hopes that this will also result in an economic reawakening.
Egypt is one of the Mena regions largest steel producers, which is why both the domestic steel companies and the central government will be hoping that 2014 will be a turning point for the industry.
Ezz Steel is the largest producer in North Africa with a capacity of 5.5 million t/y followed by Suez Steel with 2.65 million t/y. Egypt has over 7 million t/y of direct reduced iron capacity, which means it has got flexibility in the grades of steel it produces.
Consumption in Egypt is expected to be 6.8 million t/y in 2013, but that is forecast to grow to 7.1 million t/y in 2014. There are signs of improvement already with a 30 per cent quarter-on-quarter rise in steel consumption in the third quarter of 2013. Looking forward, consumption is expected to grow to 9.3 million t/y by 2018.
An increase in capacity is expected to be slow. MEED Projects states that there are $800m worth of steel schemes at the pre-execution phase with another $800m worth on hold or cancelled.
After several years of turmoil, Egypts steel producers will be hoping that stability will return and they can start producing large volumes for the domestic market once more.
Much will hinge on political stability returning to the country in 2014. Without that, the future will continue to be challenging for Egypts steel industry.
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