CAIRO: It’s a bold move at a time when the global economy seems have ground to a screeching halt: Al-Kharafi Group announced this week that it was awarded a contract by the Industrial Development Authority to produce an additional 6 million tons of steel billets annually.
This comes less than a year after Al-Kharafi, a privately owned Kuwaiti company, was awarded the first contract for producing steel billets in Egypt.
The newly awarded license is in line with the company’s plans to boost its investments in Egypt.
We expect to inject new investments worth not less than $3 billion in the tourism sector and the majority will be in the industrial sector, Ibrahim Saleh, the company’s vice chairman, told Reuters late last December.
Al-Kharafi has agreed to pay LE 108 million in licensing fees as part of the deal, which is expected to bring somewhere around $800 billion in investment to the country.
Despite the roiled economic waters, steel industry experts anticipate that the length of time it takes for a steel plant to come online could help companies like Al-Kharafi miss the worst of the storm.
There is a very long lead time with these plants, said Patrick Gaffney, vice president for equity research at investment bank EFG-Hermes. “The earliest they could start production would be by late 2011, but I wouldn t be surprised if they didn t start production until 2013 for this second plant.
Also boosting hopes that the Al-Kharafi project may be successful is that the company plans to produce billets rather than finished steel.
They re doing billets, which is an input into the steel making process, explained Gaffney.
Even if the demand for finished steel decreases, production of it is likely to exceed demand. Al-Kharafi will have the opportunity to sell billets for use in all finished steel products.
As long as there is demand for steel products, then there will be demand for billets, added Gaffney.
Steel prices have fallen precipitously in the last few months. Prices have fallen since August of last year, said Gaffney.
Even with prices low in Egypt, they’re even lower on the international market.
If you look at where [steel on the international market] is trading, it s below Egyptian prices, said Gaffney. “But if you include taxes and shipping, Egyptian prices are not too much higher.
Daily News Egypt reported earlier this week that with cheap prices internationally, steel traders are planning to import up to 100,000 tons in the coming months from the Ukraine, Turkey and Greece at a price range of between LE 3,500 and LE 3,700 per ton
The Managing Director of Ezz El Dekheila told Al-Alam Al-Youm earlier this week that he sees stability in steel prices in the Egyptian market and that current demand on steel has increased from the same period last year. This, he says, is an indicator that the Egyptian construction industry has not yet been affected by the global economic slowdown given increasing demand on building units, especially among low- and medium-cost housing.
Prices on the London exchange fell dramatically over the second half of the year, down 70 percent between June and December of last year.
Al-Kharafi’s investment was a bold one given the economic climate and the slumping steel prices. But since it will take several years for the new plants to come online, the markets may have plenty of time to recover.