CAIRO: In a move that is likely to further bolster Ezz Steel’s preeminence in the Egyptian steel industry, a number of Turkish steel mills are slated to withdraw from the market, reportedly because the Egyptian steel giant has reduced prices to a degree that competitors can’t keep up.
“This has been anticipated following the decision by Ezz Steel Rebars . to lower its selling price to LE 2,900 per ton ($518 per ton) on July 1 .. This is positive news as Ezz retains its market share in the local market, said Beltone Financial in a statement.
These developments come on the heels of a severe decline in the price of steel. In a signal that prices may be stabilizing, several companies announced late last month that they would slightly increase prices.
“We estimate steel local demand to grow at a CAGR of 15.6 percent to reach 13.4 mtpa by 2013, of which around 82 percent are long products, wrote analysts at HC Brokerage, indicating the industry may be headed for recovery.
Despite a possible turnaround, Ezz recently announced its decision to lower prices in order to remain domestically competitive.
Its recent announcement, Ezz reduced rebar prices from LE 3,050 to LE 2,900.
Ezz’s cash cow remains Ezz Dekheila, in which it owns 52.1 percent. HC Brokerage recently issued a “buy status for Dekheila. Meanwhile Pharos Holding issued a “hold for Ezz steel.
In the short term we believe that pressure on revenues, margins and net profits in addition to unfavorable sector dynamics are likely to put a break to price appreciation, said Pharos.
Ezz’s latest maneuvering – as evidenced by the withdrawal of Turkish plants – indicate its efforts to recover from what was a disappointing first quarter of this year.
Revenue dropped 32.3 percent in the quarter and net profits were down 84.8 percent versus the first quarter of 2008. Analysts say the decline was partially the result of falling steel prices.
The decline in prices was too dramatic to be offset by a 16.1 percent growth in the construction sector over the first quarter of 2009. Construction is a sector that relies heavily on long steel.
Analysts at Belton financial say that Ezz has been able to outmaneuver the Turkish rebar companies because scrap prices have been on the rise, which has boosted costs for the Turkish producers. Conversely, a decline in the price of iron ore has allowed Ezz to keep its prices low.
According to some analysts, though, the increase in scrap prices, while bad for Turkish merchants, may signal good news for the global economy.
“A rise in scrap price, wrote Beltone, “indicates a progressive recovery in the global economy, but we do not rule out another retreat in scrap prices before it rises on the long term upward trend.