CAIRO: In line with experts’ expectations, Egypt’s giant steel producer Al Ezz Steel Rebars increased Tuesday its July market prices by LE 570 per ton.According to local sources, the company revealed July 1 its new pricing scheme for the entire month. Consumer prices mounted from the previous LE 5,990 per ton to the current LE 6,560.
This is the company’s fifth price increase since beginning of the year. The company, which controls more than 62 percent of the market, has been steadily raising prices since October.
Based on Beltone Financial data, Al Ezz Steel Rebars has been increasing prices since 2008 in order to absorb a 70 percent increase in global prices of iron ore, which it estimates will soar an additional 20 percent this year.
The regional investment bank indicated that Al Ezz Steel Rebars is able to further hike prices each month without adversely affecting its sales because steel market in emerging economies remains very tight in favor of steelmakers.
“Al Ezz Steel Rebars would be able to make additional increases in selling prices if it is forced to pay an even higher price for iron ore, Beltone noted.
Al Ezz Steel officials have repeatedly justified domestic upsurges in their prices to leaps in international markets and rises in prices of raw material, which “directly affected production costs.
“No one can really tell if these [allegations] are true, said Magdy Sobhi, senior economist at Al-Ahram Center for Strategic Studies who raised doubts that domestic steel prices could be more expensive than other international markets.
He explained that when steel prices relentlessly surged in Egypt, several contractors resorted to importing steel from international markets, specifically from Ukraine.
“This means that imported steel sells cheaper than domestic prices. If other countries are able to produce and sell steel at lower prices, then we can’t really say that domestic upsurges are due to a global rise in costs of input, he pointed out. “But steel producers in Egypt insist on [saying] that input costs are spiraling.
Experts estimate that local steel producers import up to 80 percent of their input material from international markets.
Al Ezz Steel Rebars is one of the largest steel producers in the region. The company also sells to international markets including the US, Canada, China and a number of European countries.
According to company statistics, Al Ezz Steel Rebars is the largest independent steel producer in the Middle East and Africa in terms of sales, producing a total of 5.3 million tons per annum since 2007. It enjoys a market capitalization of LE 15.5 billion.
Total revenues soared 39 percent to around LE 16.2 billion in fiscal year 2007, up from LE 11.6 billion in fiscal year 2006.
Revenue growth is generated by a combination of volume growth, price gains, and a partial consolidation of main subsidiaries, Beltone Financial said.
Net income also jumped 12 percent to LE 1.122 billion in fiscal year 2007, compared to LE 995 million the previous year.
The company’s monthly pricing momentum is expected to persist throughout the year, as steel prices are currently searing hot on the market, especially during the summer season on aggressive real estate construction activities.
“When steel prices increase, costs of construction and real estate also increase, which reflect both on consumers and government alike, Sobhi explained. “On one hand, costs of infrastructure and road construction increase for the government, and on the other hand, property prices surge for consumers. This translates into higher inflation rates.
Steel prices have recently soared to an average of LE 6,000 per ton, with experts estimating further hikes in the summer. Local news reports revealed last May that recent hikes in both steel and cement have jeopardized a number of state-run construction projects, as local contractors demanded several ministries to offset their rising operating costs, which have reached LE 2 billion.
Beltone Financial also estimates that steel prices will further hike as a result of the government’s decision to raise energy prices for heavy intensive industries from $1.85 per million British thermal unit (mbtu) to around $2.90 per mbtu.
However, it explained that the decision was not alarming to Al Ezz Steel Rebars performance, as energy represents a proportionately low cost component compared to raw material costs.