CAIRO: Ezz Steel, Egypt s largest steel producer, cut its November prices by 30 percent, as slowing economic growth and the global credit crunch have forced builders to slash orders.
“This price decrease is due to the global economic crisis. Commodity prices have fallen across the board, and naturally steel prices got impacted, said Samir Noeman, chief sales executive at Ezz Steel.
The company reduced its November ex-factory prices to LE 3,900 per ton, down from the previous LE 5,600. “This is a 40 percent decline from peak prices in August which stood at LE 6,630 per ton, Noeman said, adding that retail prices will hover around LE 4,100 per ton.
Steel analysts said the price cut was not surprising as prices of raw material such as scrap have been falling internationally, coupled with a weakening domestic demand amid a slowdown in economic growth.
“The price decline was due to falling international steel prices, lower demand, and competitive imports, explained Patrick Gaffney, steel analyst at investment bank EFG-Hermes. “But we were surprised by the extent of the recent drop.
Deepening concerns about a looming global economic recession is keeping consumers away from purchases of houses, cars and home appliances, lowering demand for steel worldwide.
Booming steel demand in the first half of the year pushed scrap prices up to around $700 a ton in June. But, with a summer construction lull and a deepening financial crisis, prices have come off to around $300 per ton.
On the London Metal Exchange (LME), the price of billet – mainly used in construction – has collapsed in the past couple of months from above $1,250 per ton in late June to below $400 this week.
In Egypt, Noeman said that domestic sales have recently been slumping and almost came to a halt in October. “We saw a contraction in October because consumers were waiting for price declines.
Gaffney agreed saying that consumers had delayed purchasing steel because they expected a price drop. “Our fear is that consumers will not believe that prices will stabilize at the current level and will again hold back purchasing, he added. “This would force Ezz and the other steel producers to cut prices again.
He ruled out that possibility of further price cuts, hoping that prices will stabilize at current levels. “If prices fall further, it will be uneconomical for steel makers to producer steel and we could see factories close.
Noeman stated that the company would bottom out at November’s prices.
Mounting fears of a global recession hammered shares of Ezz Steel to their lowest in more than three years. The stock – down more than 60 percent this year – plunged Sunday 15.20 percent to LE 8.70, its seventh straight session of losses.
“This fall is related to both slower demand and the price decline. In general, shares of steel producers follow overall steel prices, Gaffney explained.
The firm said mid-October its sales of rebar products would likely grow 13 percent in 2008 on housing construction in Egypt, while flat steel sales would stall.
In terms of rebar, we will end this year with 13 percent growth, Chief Marketing Officer George Matta said.
Meanwhile, he added, Ezz Steel s flat steel sales would not grow in the second half of 2008 because the international financial crisis had reduced demand.
Matta explained that steel growth in Egypt would be halted due to the global economic slump, while long-term consumption spurred by economic recovery should lift the company s flat product exports.
Ezz Steel – which holds about 65 percent of Egypt s steel market – exports most of its flat products to the Gulf and Europe.
Ezz also said it plans to build a flat steel production plant in Suez with an annual capacity of 1 million tons as it looks to tap long-term demand across the Gulf and Europe.
We plan to establish a 1 million ton flat capacity in Suez to have 3 million tons by 2012, Matta said, adding that the company is in talks with banks for financing.
Ezz, which signed a deal last year to invest $750 million in a steel plant in Algeria, its first outside Egypt, has said it would boost production from its 2007 level of 4.8 million tons, about 92 percent of its capacity.
The company has said it would begin expanding capacity in 2010, reaching about 6.3 million tons per year in Egypt and 3 million tons in Algeria.