Local and regional demand behind increase in cement price

Ahmed A. Namatalla
5 Min Read

Cement expected to average LE 325-330 per ton by the end of 2006

CAIRO: A LE 25 single-day increase in cement price by The National Cement Company (NCC) last week might have angered some property developers enough to organize a public protest in front of company headquarters near Helwan, but analysts say prices should continue to climb.

A recent surge in demand has been responsible for driving NCC s per-ton price above the LE 300 mark for the first time ever, says Ahmed Badr, cement sector analyst at HC Brokerage. The price climbed from LE 290 to LE 315 last Tuesday.

There s demand so prices must go up, says Badr. And the price will continue to increase until we reach a point where our capacities can exceed our demand. He adds demand, especially in the Gulf region, where the majority of local cement is exported, has risen by 12 percent since Jan., 2006.

According to NCC figures, Egyptian consumption increased by 4.5 million tons in 2005 to reach 30 million tons. That leaves just 6 million tons of the country s estimated 36 million ton annual production for export.

NCC is the largest public sector producer with 3.2 million tons of annual output. The company is 95 percent government-owned. In the private sector, The Egyptian Cement Company dominates with more than 7 million tons per year.

NCC Marketing Manager Azzam Abdel Aziz says the privatization of the cement sector has also led to the increase in prices. In order for his company to stay competitive, he says, it must continue to increase its prices in order to keep up with the market price and customer demand.

It s all based on supply and demand, says Aziz. We work in a market dominated by the private sector and that s the direction the country is headed into. If we want free market forces to work, prices will eventually have to increase.

He says despite his company s announcement, NCC continues to sell at LE 300 per ton. The decision to increase the price, he adds, also had to be made to protect the company s image.

If we kept selling at LE 280 and everyone else is selling at LE 340 and LE 350, everyone is going to doubt the quality of our product, says Aziz. People naturally equate higher prices with higher quality, so pretty soon our cement would have been viewed as inferior. We had an image issue to deal with.

According to HC research department figures, the price of cement has steadily increased over the past two years from a market average of LE 242 in 2004 to LE 272 in 2005. Badr says he expects 2006 to close with an average ranging between LE 325 to 330.

What s happening now is you have multinationals that are control of the market, says Badr. Before, the government used to be in control so it could set the price. Now multinationals are running the market so why can t they raise prices?

The increase in price has helped boost the bottom lines of cement manufacturers across the board with some recording three-digit increases in earnings. Last week Torah Cement reported a Q1 net income of just over LE 180 million, up from just LE 70 million in Q1 2005. Suez Cement reported LE 484 million in H1 net income, up 214 percent from LE 154 reported in H1 2005.

Reports of healthy results give investors more of a reason to invest in cement companies, says Badr.

Cement has always been a defensive stock for investors because cement companies are profitable, Badr says. There s trust between the investor and the cement sector.

Badr adds he expects prices to continue to climb until at least 2010, when studies show regional production capacities will finally surpass demand.

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