CAIRO: Ezz Steel, Egypt’s largest steel producer, said it will raise its ex-factory price for steel by LE 350, bringing it up to LE 3,950 for September, according to local reports.
The rise has been widely attributed to the hike in global raw materials — especially in the past month and half as well as the finished steel markets, analysts told Daily News Egypt.
The news comes as the Egyptian firm told Reuters on August 26 that its net second-quarter profit had more than tripled, reaching LE 136 million, versus LE 37 million in the second quarter of 2009.
The report equally noted the firm’s optimism, as it predicts that global demand for steel will buoy steel prices until the end of 2010.
Looking ahead, Paul Chekaiban, Ezz Steel’s managing director, told the news agency, "As we go forward, despite a general context of sharp volatility, we expect demand and prices of steel products to improve gradually during the second half of 2010."
Commenting on the announcement, HC Brokerage, a Cairo-based investment firm, highlighted in a note, “The price increase reflects higher scrap prices of 30 percent over the past two months.”
“Spot iron ore and scrap prices increased between 12 percent and 18 percent over July average prices, respectively,” stated Rita Guindy, a building materials analyst at Egypt’s EGF-Hermes.
Furthermore, Beltone Financial, a Cairo-based investment firm, stated in a note that the month of September marks the highest steel prices so far in 2010, April being the one exception, when the Egyptian steel company’s prices hit LE 4,100.
Reaction to the news has been regarded as positive according to analysts.
An increase in general had been foreseen, Guindy stated, but its magnitude came unexpectedly.
“We were expecting an increase, but LE 350 was stronger than [Ezz Steel’s] expectation of a LE 200 increase,” she said.
“The stronger-than-expected price increase is positive for the company’s third quarter margins, especially as their costs will not be as high as we had anticipated, according to management. The positive impact will only be realized if the company is able to sell more volumes than they have in the second quarter,” she stated.
Rehab Taba, research manager at Prime Securities, had a slightly divergent opinion.
She described the trend as negative since “local steel demand declines during Ramadan and the summer months on the back of the slowdown in construction and real estate activities.”
She continued by explaining that Ezz Steel has decided to boost its steel prices in order to pass on the “increase in raw material prices to consumers and sustain its margins.”
Moreover, she indicated, that the company will find it particularly difficult to sell at such high prices, especially in view of the current slowdown in demand, coupled with competition emanating from imported Turkish steel.
She attributes the inflow of Turkish steel, which will be sold at LE 3,420, being at the root of the cause for the price differential between Ezz’s steel prices, which will attain LE 3,950 in September versus the international price of LE 4,500.
Local reports have also noted that a crisis has occurred within the steel market owing to the plunge in productivity in August, which, however, is common, during Ramadan.
Guidny was less eager to categorize the drop as a crisis as some reports had, but equally concluded that a drop in activity in the steel sector had indeed occurred, which was to be expected.
Yet, she further added, “sales volumes were lower as a result of seasonally slower construction activity during Ramadan. During the second quarter, sales however have been lower than usual, but July and August made up for the previous quarter, according to the company.”
Guindy continued, therefore, the third quarter should more positive than the second quarter in terms of volumes.
In the second quarter, high steel prices have partly made up for weak volumes, she said.
Citing the company’s forecast models, Beltone Financial portends Ezz Steel’s average selling price of LE 3,846 for the 2010 fiscal year.
