Having dominated the Egyptian market, the firm plans to spread its influence across North Africa.
Structure
The Ezz family began importing and distributing steel products into Egypt in the 1970s. In 1994, Ahmad Ezz founded Al-Ezz Steel Rebars (Ezz Steel), before acquiring a 400,000-tonne-a-year (t/y) steel mill in 1995. One year later, production had reached 1 million t/y.
The company went public in 1999 and expanded with the acquisition of a 21.5 per cent controlling stake in Alexandria National Iron & Steel Company, later renamed Al-Ezz Dekheila Steel Company (EZDK), which produced 1.7 million t/y of reinforcement steel bars (rebar) and now produces 2.7 million t/y.
Ezz Steel’s ordinary shares are listed on the Egyptian Exchange and its global depositary receipts are listed on the London Stock Exchange. The company had a market capitalisation of £E3.4bn ($609m) on 8 February 2009. Gross profits for 2008 were £E4.1bn, up 43 per cent on 2007.
Net sales in the first nine months of 2008 were £E17.4bn, up 45 per cent year on year. Despite cost inflation, the company maintained a gross profit margin of 24 per cent.
Ezz Steel is the holding company of Al-Ezz Steel Mills (ESM), in which it holds a 90.7 per cent stake. It also has stakes of 53.2 per cent in EZDK following further share purchases, and 75.2 per cent in Al-Ezz Flat Steel Company (EFS).
Ahmad Ezz has served as chairman of Ezz Steel since its foundation in 1998 and as chairman and managing director of EZDK since 2000. He has also served as a member of the Egyptian parliament since 2000.
Company snapshot
| Date established | 1994 |
| Main business sectors | Steel production |
| Main business regions | Egypt, the rest of North Africa and Europe |
| Chairman | Ahmad Ezz |
Operations
Ezz Steel is the largest steel producer in the Middle East and Africa, with a total output of 5.3 million t/y. It has a dominant position in the Egyptian market, with a market share comprising almost 70 per cent in long products, and 68 per cent in rebar. Its nearest rival, Beshay Steel, had a 12 per cent rebar market share in 2006.
The company’s production capacity can be broken down into 3.1 million t/y of long products and 2.2 million t/y of flat products. The majority of its long products are directed at the construction sector in its domestic market.
Flat products are mainly directed at the export markets, where they are typically used in the production of consumer and industrial goods.
The company has four plants. One, at Sadat City, produces 1 million t/y of rebar long products. The EZDK plant in Alexandria produces a total of 2.7 million t/y of long and flat products.
Ezz’s Suez plant has the capacity to produce 1.2 million t/y of hot-rolled coil. The smallest plant, at Ramadan City, has capacity to produce 400,000 t/y of rebar and wire rod.
Ezz Steel has two major advantages over other regional suppliers. It is one of a small group of producers that are able to produce both long and flat products. This wide product range helps bolster the company against fluctuations in market demand. Ezz also operates a private port at Alexandria that can dock ships of up to 150,000 deadweight tonnes.
In the period January to September 2008, Ezz produced 2.37 million tonnes of long products, up from 2.33 million tonnes in 2007 as a whole, and 1.23 million tonnes of flat products, down from 1.26 million tonnes in 2007.
Ezz had total net sales of £E17.4 bn for the first nine months of 2008 compared with £E12bn for the same period in 2007, a rise of 45 per cent. Long products accounted for 67 per cent of total sales and flat products 33 per cent.
Ambitions
In terms of sales, Egypt remains Ezz’s largest and most important single market. Nonetheless, Ezz is committed to its expansion plans both within and beyond the country’s borders. It says it is continuing with its investment projects in Egypt and Algeria, but its implementation timeline is under review because of the international economic crisis.
Ezz’s projects in Egypt include establishing two 1.65 million t/y direct-reduced iron plants in Suez for internal consumption, and increasing capacity at its EFS billets plant to 1.35 million t/y. The additional capacity will double EFS’s finished flat-steel production capacity from 2.2 million t/y to 4.4 million t/y.
Outside Egypt, Ezz has significant greenfield integrated works planned in Algeria. The 3 million-t/y steel plant project in the country is worth $2bn. Building work on the first of two phases was originally scheduled to start in the third quarter of 2008, but the project is awaiting government approval under new investment laws.
MEED assessment
There is plenty of potential for Ezz’s investments outside Egypt. Algeria has only one major steel producer, ArcelorMittal Annaba, and has become a key market for rebar exporters in Turkey and Europe, driven by ongoing strong demand for construction-related steel products.
More than 70 per cent of Ezz’s plants are less than 10 years old and use the latest in modern steelmaking technology. This has added to its flexibility in terms of production rates, raw materials and its ability to produce a diverse product range.
Ezz remains optimistic in spite of the falling steel prices since the highs of mid-2008. Global steel prices have collapsed in the face of a significant decrease in demand worldwide, and this will continue to have an impact on domestic steel prices, which are linked to global markets.
The company expects a slowdown in activity as the market adjusts to the lower prices, and says margins will reflect the drop.
However, Ezz reported strong sales for the nine months to 31 September 2008. Sales reached £E17.4bn, up 45 per cent on 2007, and net profit rose 56 per cent during the same period, to £E3.4bn. Also, local demand for steel remains strong and the company expects the ongoing government subsidised housebuilding programme to continue to generate demand for long products.
Egyptian and Middle East Steel production
Steel consumption in the Middle East is more than double the region’s production, highlighting its heavy reliance on imports.
According to the International Iron & Steel Institute (IISI), Middle East raw steel production stood at 21.1 million tonnes in 2006, accounting for 1.4 per cent of global supply. Regional consumption was 41.6 million tonnes in 2006, or 3.7 per cent of the world total.
Only two regional companies, Ezz Steel and Saudi Arabia’s Hadeed, make it onto the IISI’s list of the world’s top 80 steelmakers. Egypt and Saudi Arabia are ranked 27th and 36th, with 0.5 per cent and 0.3 per cent of global capacity respectively.
Like other countries in the region, Egypt has suffered from steep increases in prices for semi-finished and finished products. In mid-February, rebar from Turkey was priced at $470-480 a tonne, down from the summer 2008 peak of $800-850 a tonne, on the back of weak demand from the construction sector.
Long products, mostly for use in the construction industry, dominate Middle East steel supply and demand, accounting for two-thirds of consumption. Regional output of long products is expected to rise by 17.7 per cent from 2007 levels to 30.5 million tonnes by 2011. At the same time, consumption will increase more slowly, by 13 per cent to 46.5 million tones, narrowing the current gap between supply and demand.
Iran is the Middle East’s leading steel producer, ranked 20th in the world in 2006, when the country produced 9.8 million tonnes of crude steel. The same year, it consumed 17.9 million tonnes of finished products.
Iran wants to quadruple production by 2012, but US sanctions that prevent foreign investment in Iran’s industries will hold back these plans.
Furthermore, since Iran still only produces just over half the amount of steel it consumes, it is in no position to export products regularly to the rest of the region.
Out of all the Middle East countries, only Saudi Arabia is in a position to substantially ramp up production, because of the government’s commitment to investing in non-oil industries.
Egypt is the region’s other major player, but exports little to the GCC, where demand growth has been strongest. Egypt has about 20 steel mills, three of which are integrated or semi-integrated to produce long products.
In addition to Ezz Steel, several smaller players operate in the Egyptian market, including Beshay Steel, which produces 1 million tonnes a year (t/y) of finished products, and International Rolling, which produces 500,000 t/y of finished products.
In 2006, the Middle East imported more than double the amount of steel it produced. As an area, it is second only to the signatories to the North American Free Trade Agreement in terms of steel import volumes.
For its domestic production, the Middle East is heavily dependent on imports of iron ore feedstock, with only Iran possessing significant indigenous reserves, estimated at 4.5 billion tonnes.
This dependence on imports leaves the region’s industry exposed to volatility in global iron ore prices, which have soared over the past four years.
To ensure security of supply and control costs, Middle East producers are seeking to invest in iron ore projects, in common with steel companies across the world.
Saudi Arabian Mining Company (Maaden) is in a strong position to increase its iron ore production, with mines near Tabuk in the north boasting an estimated 84 million tonnes of good quality iron ore.
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