Company to increase in net income and plans for new factory in Sharkeyya
CAIRO: Delta for Sugar (DS) has announced plans to build a new 125,000-ton capacity sugar factory in Sharkeyya at a price tag of LE 750 million. The company now produces 260,000 tons per year, second to The Company for Sugar and Integrated Industries with an output of 1 million tons per year.
In April, DS announced plans for new sugar factories in Fayyum and Dakhaila with combined production capacities of 350,000 tons per year, though no start dates were announced.
The government started talking about [the Sharkeyya factory] six months ago when world sugar prices skyrocketed and directly affected the sugar prices here in Egypt, says Economist Magdy Sobhy of Al Ahram Center for Political and Strategic Studies. [The government] saw the need to control prices and the solution was to increase local production.
Sugar now sells for LE 3 per kilo for consumers, up from LE 2.25 in January, 2006. Egyptians consume about 2.4 million tons of sugar per year, of which 800,000 to 1 million tons are imported, according to The Egyptian Chamber of Food Industries (ECFI).
Despite the fact the sugar industry is one of the few run using completely local expertise and machinery, Sobhy says it s unlikely the country will be able to satisfy local demand anytime soon.
I don t think [satisfying local demand] is possible currently because the gap between production and consumption is very large, Sobhy says. But there s the possibility of controlling prices by expanding the current production facilities . I think the government, in refusing to sell sugar industries to strategic investors, recognizes the importance of sugar to the country and the importance of keeping prices down.
DS officials declined to comment on the announcements. Sobhy says the company s reputation for refusing to disclose information is consistent with the entire sector s tradition to exercise maximum control over one of the most important commodities to national security, as viewed by the government.
It is also for this reason, he says, the government has made clear its decision to not sell remaining stakes in DS and other sugar companies to private investors, opting instead for stock market share floats. The government owns 51% of DS with the rest of shares being traded on the Cairo and Alexandria Stock Exchange. Earlier this year, Minister of Investment Mahmoud Moheiddin announced the government intends to float another 30% of DS shares by the end of 2006.
I think the current time is not suitable [to seek strategic investors] because most of your expertise exist in the public sector and because there are no financing problems, says Sobhy. It s a very profitable industry so there should be no reason to sell.
Production in the new DS factory in Sharkeyya will rely on sugar beats, according to a DS statement, instead of the traditional use of sugarcane. The shift has been adopted in recent years in most new factories because beats use less water and produce more sugar, says Shahhat Selim, sugar sector expert at ECFI. On average, beats hold 14-15 percent sugar content, compared with 10-11 percent in sugarcane, he says. The price per ton stands at LE 140-LE 150 per ton for both.
Despite the recent price increase, Selim says Egyptian sugar prices remain very affordable compared to international prices because of government subsidies awarded to producers.
Although consumer sugar prices have nearly doubled on the local market in the past two years, Sobhy says he does not expect the trend to continue in the short term because of stability in global prices resulting from an increase in reserves.
This week, DS announced 1Q net income of LE 299.7 million, up from LE 281.2 million in the first quarter of 1Q, 2005. According to a company statement, 2006 production estimates include 260,000 tons of sugar, 110,000 tons of fertilizers and 90,000 tons of molasses.