CAIRO: Al Ezz Dekheila Steel, a subsidiary of Egypt’s dominant Al Ezz Steel Rebars, reiterated its ex-factory price for a ton of steel this week and set formal limits for the prices dealers and retailers can charge, in keeping with a new set of rules advanced by the Ministry of Trade and Industry this week.
While Al Ezz’s move was largely a formality, it will be a first trial as to whether the Trade Ministry’s new rules, which encourage steel producers to set price limits and sever relations with dealers who do not comply with them, will substantially dampen steel speculation and lower the towering prices faced by end consumers here.
Al Ezz reported its ex-factory price at LE 5,700 per ton, in keeping with figures released earlier this month, and set price caps at LE 5,890 for distributors and LE 5,990 per ton for retailers.
George Matta, marketing director at Al Ezz Steel, told Daily News Egypt he expected resellers to respond quickly. “The regulations are very clear, he said. “Those who do not comply will be reported to the ministry.
Al Ezz deals with about 90 wholesalers who in turn sell to between 1,000 and 1,100 retailers, he said. The firm recently set up a hotline for consumers to report disobedient re-sellers and will launch an advertising campaign to keep people aware of new price limits in June, he said.
Now the onus is on the resellers to comply because it is going to be in both parties’ interests to maintain their relationship, Tarek Shahin, a construction sector analyst at Beltone Financial, said. It is particularly important for resellers, he said, “because where else are they going to get the product?
The structure of the new rules suggests that in end prices could respond within the week in a “best case situation, Shahin said. But resellers may choose to wait and see if producers boost their ex-factory prices again at the beginning of June before making substantial changes in their own pricing, he said.
Recent trends suggest this is likely: Al Ezz has raised its ex-factory price at the start of every month this year and high construction demand during the summer months tends to bolster steel prices at this time of year.
Menna El-Hasnawy, a steel analyst at HC Brokerage, said a drop in end prices depends on whether or not resellers comply with the price caps, to what degree the state is able to monitor trading and if producers are actually able to cut off relations with disobedient retailers.
“It’s not a clear picture, she said. “Maybe if they [steel companies] are dealing with many distributors, one or two might not affect them. But in some cases it may be difficult for steel producers to snip ties with key dealers, she said.
Analysts and consumers have blamed resellers for jacking prices beyond reasonable levels here in the past few months, even as a construction boom and the rising costs of inputs like billets and iron ore have pushed ex-factory steel prices to record heights.
The margins garnered by retailers and, in particular, wholesalers were becoming “really excessive, Matta said. He said the sector has grown 25 percent faster than over the same period last year, and that concerns of higher prices were encouraging hoarding, which flung costs into an upward spiral.
“The people who were really raising the price were reacting to supply and demand dynamics, he said. “But we have to put a cap on these prices.
No other steel firms have announced pricing limits, but smaller players will traditionally follow the lead of Al Ezz, who commands about 70 percent of the Egyptian steel market, Shahin said.
“I imagine they ought to, he said. “They don’t want the government to be angry with them as well.