Ezz Steel cuts prices by 12 percent

Sherine El Madany
5 Min Read

CAIRO: Mirroring declines in international prices, El Ezz Steel Rebars lowered Sunday its retail steel prices by LE 820 to LE 6,150 per ton, a 12 percent decline from its year’s peak prices in August.

“This price decline is mainly due to falling international steel prices, especially the prices of raw materials such as scrap, said Patrick Gaffney, steel analyst at EFG-Hermes.

Prices of long steel – a key construction material – have plummeted sharply since July in the Middle East as work slows down due to hot weather and ahead of the holy month of Ramadan which starts today.

However, this year’s summer lull and seasonality was not the whole story. Lack of demand from Europe, the United States and China – because of the Olympics – also fuelled the fall.

“Given the wider context of a general economic slowdown, we should expect to see an impact on steel demand, steel analyst Jeff Largey at JP Morgan recently told Reuters.

So far this year, demand for steel seems to have decoupled from the slowdown in the United States and in Europe as a construction and infrastructure boom in the Middle East and emerging economies buoyed demand.

Consequently, El Ezz Steel Rebars – Egypt’s largest steel producer – cut prices on Sunday, setting its ex-factory price at LE 5,950 per ton. Egypt’s other steel producers did not reveal retail prices by press time on Sunday.

“We do not yet know prices of Ezz’s competitors, but we assume they will report new prices by tomorrow, Gaffeny pointed out.

He predicted that Ezz will likely continue to have the lowest steel prices in September. “Ezz was already the lowest steel producer among Egyptian producers and will continue to be the lowest.

In July, steel from Ezz was about LE 800 less than that of its competitors. Ezz’s new prices are below its announced prices in July and August. The company – which holds more than 62 percent of the market share – had been steadily raising prices since October, 2007.

The company’s latest price hike was in August when it revealed it mounted its retail prices to LE 6,960 per ton, up from LE 6,560 per ton in July. This was the company’s sixth price increase since the beginning of 2008.

However, Ezz Steel Rebars reversed trends this month after prices peaked to record highs in August, mainly due to global declines in raw material costs.

Experts forecast that other Egyptian steel producers will push down prices, however, not lower than Ezz prices.

“I don’t think that competitors will lower prices below Ezz’s prices,

Gaffney said. “Egyptian steel producers [also] import raw materials, but Ezz uses different technology that enables it to be more cost-effective than its competitors.

EFG puts the estimated average price for the third quarter of 2008 at LE 6,000 per ton. For the full year, the regional investment bank marked an average price of long steel at around LE 5,350 per ton, expecting steel prices to stabilize at current levels in 2009 and 2010.

“The current correction was probably necessary because prices were [already] high, said Gaffney adding that stronger demand in emerging markets, namely in China post-Olympics and in the Gulf after Ramadan – the world’s fastest-growing steel consumers – should support prices in the fourth quarter.

Ezz Steel reported mid-August a 63 percent increase in its first-half 2008 net profit to LE 1.02 billion ($191.2 million), up from LE 625 million a year ago, mainly generated from an upsurge in steel demand. Net sales in the first half soared 41 percent to LE 11.1 billion, compared with LE7.8 billion during the same period last year.

Meanwhile, Ezz’s price decline this month was not well received on the Egyptian Stock Exchange, as shares in the company bucked the market’s uptrend. Shares in the company shed Monday 3.59 percent to LE 25.

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