CAIRO: Egypt’s Ministry of Trade and Industry this week announced its intention to consider extending additional licenses for cement production in an effort to boost local supply in the face of increased domestic demand.
Reports also indicated that the government is not considering taking similar steps in the steel industry.
Cement prices this year have reflected a significant appetite for consumption in the Egyptian economy.
Cement prices rose during the first half of this year and then stabilized at high prices, said Ismail Sadek, an analyst at Beltone Financial.
The discussion over new licenses, though, must be somewhat divorced from the current debate over rising prices and increasing demand in the short-term.
A handful of new licenses were awarded over the past few years. From the time of issuing a license to the time that that license begins to generate cement can take several years. Rising demand in 2009, therefore will be met not by issuing new licenses this year but rather by the companies that are acting on licenses awarded in years past.
There were a lot of cement licenses that were extended in 2007-2008 that are still ramping up production, so there should be no need for new licenses if expansions are actively taking place, said Sadek.
The question on these new licenses, though, is concerned more with what demand for cement will look like in several years when the new production facilities come online.
And even if demand continues to grow, will it outstrip the increased production that is already slated to come online in 2010 and 2011?
Today, cement production stands around 43 million tons per year. Analysts estimate that that figure will grow to about 48 million in 2010.
Sadek, though, believes that increased demand is on a far more dramatic trajectory.
This year alone we could see an increase in cement demand by not less that 20 percent, he said.
The Minister of Trade and Industry echoed the same sentiment, saying that last year’s licenses were issued in anticipation of a 10 percent annual increase in demand. He noted that the current 25 to 30 percent annual rise had changed the equation.
The government gave no indication, though, of following a similar approach with steel, demand for which is also on the rise.
As of the first quarter of 2009, Egypt was a net importer of steel, meaning that production was not at a level sufficient to meet local demand.
I estimate that we can consume up to 6.5 million tons of rebars for 2009, said Sadek, signaling a continued uptick in demand.
Rebars are traditionally used in industry, and increased demand for rebars indicates continued strength of Egypt’s industrial sector.
The rise in demand for both cement and construction is also reflective of continued growth in housing. Furthermore, the government’s stimulus package to boost a sagging economy was heavy on infrastructure projects, which demand both cement and steel to implement.