Ezz Steel expects continued foreign exchange challenges, decline of global market in short-term

Mohamed Ahmed
5 Min Read
Egypt steel producer Al-Ezz Dekheila Steel Company, owned by Ezz Steel, announced Monday it has registered EGP 116m in net losses in the first quarter (Q1) of 2015. (Photo courtesy of Ezz Steel)

Ezz Steel company succeeded in reducing its losses during 2015 recording a net loss of EGP 603.34m, which is a decline of 27.8%, compared to net losses of EGP 835.6m during 2014.

This improvement comes despite the drop in sales, estimated at EGP 16.64bn during 2015 at a rate of decline of 14%, down from EGP 19.4bn during 2014.

However, the company’s gross profit rose to EGP 1.108bn, compared to EGP 690.5m during 2014, owing to lower costs of EGP 15.533, compared to EGP 18.707bn during the comparison period.

Ezz Steel reported a significant rise in net profit for Q4 of 2015, totalling EGP 137m, while it recorded net loss of EGP 307.2m during the same period in 2014.

Chairman and Managing Director of Ezz Steel Paul Chekaiban said in a statement released by the company, a copy of which was obtained by Daily News Egypt, that the company reported a negative performance during 2015 for the second year in a row.

He attributed this drop to the global crisis facing the steel industry, and the shortage of foreign exchange resources in the Egyptian market.

He predicted that these challenges will continue in the short-term, however the initial indicators promise a slight improvement in the global steel market.

Chekaiban noted that there are promising indicators that Egypt will take decisive steps in the field of monetary, which leading him to be optimistic in the long term.

Ezz Steel expected improved operating margins during 2016 in light of the opening of Ezz Rolling Mills (ERM) in Suez during 2015, which will provide the company with its raw material requirements.

The company also confirmed that it has a good chance of obtaining a natural gas supply as a raw material to be used in the operation.

Ghada Alaa, a financial analyst at Beltone Investment Banking, said profit margins improved at all the companies affiliated to Ezz Steel in Q4 of 2015 owing to lower raw material prices and the opening of ERM.

She added that there is a global decline in raw material prices, including scrap and iron bars, because Chinese factories tend to export their excess production.

The operation of ERM contributed to preserving the company’s liquidity, used to buy raw material requirements, which has compensated the devaluation of working capital, Alaa said.

These positive factors coincided with the availability of natural gas supply over the past months, as well as the decline in power plants’ gas consumption during the winter, she said.

The Egyptian government reduced the price of gas for steel mills from $7 to $4.5 per million BTUs in March, which will reduce the losses incurred due to high energy prices.

Alaa pointed out that Ezz Steel is still challenged by the foreign exchange crisis from Q1 of 2016, especially in February, which has affected the company’s ability to buy its raw material requirements.

She expected that the company will incur a loss due to exchange differences in Q1of 2016 as a result of the devaluation of the pound against the US dollar, especially as 30% of the company’s debt is in foreign currencies.

The total financing cost of the company in 2015 reached EGP 1.211bn, compared to EGP 863m in 2014.

According to the statement issued by Ezz Steel, the sale of steel during 2015 recorded about EGP 13.873bn, while sales of bar iron reached about EGP 2.6bn, while other sales were estimated at EGP 168m.

Ezz Steel’s exports recorded EGP 985m, including EGP 786m of bar iron sales and EGP 199m of steel sales, totalling 3.2m tonnes in 2015, with an annual decline of 9%.

The annual sales rate of bar iron fell by 23% to reach 616,660 tonnes due to lower production in the wake of a decline in demand locally and globally.

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