CAIRO: The government has handed out four new steel licenses in an attempt to reduce the shortage of the local steel supply, local media reports recently stated.
Through the new licenses, a further 2 million tons of finished steel and 1 million tons of billets will be made available to the local market, the Industrial Development Authority said, according to a Reuters report.
Beltone Financial stated that it is “not concerned about the effect of the increase in supply on the Egyptian steel market, as there is still a gap of around 1.5–2 million tons, annually, that are currently filled by imports.”
It continued by adding: “Such an investment would require 4–5 years to bear fruit.”
Port Said National Company for Steel, IIC for Steel Plants Management, Al-Marakbi and Al-Wataniya all came out on top of the bidding process for the new licenses.
The capacity that each firm will be allowed to put onto the market has yet to be decided, Beltone Financial stated in a note.
The government’s decision was motivated by a need to free up capacity that was being left unused as a result of the inability of Arcelor Mittal — an international steel firm with operations in the Egyptian market — to exploit the license it had obtained, thereby forcing the government to revoke it from the firm, said Omar Tata, an analyst for Beltone Financial.
Highlighting the importance of ramping up local steel production, Reuters cited Mohamed Sayed Hanafy, general manager of the Chamber of Metallurgical industries, who stated that a burgeoning middle-class in Egypt is driving the construction sector and the government’s spending on infrastructure, which should result in a 36 percent increase in reinforced steel production by 2017.
His firm also noted that Upper Egypt would be the main beneficiary, as it would provide the bulk of the new production.
In Tata’s view, the decision should be regarded as “positive” for the construction industry, as it shows that growth in the sector is on the horizon, and that the private sector is coming back onto the scene.
Hany Samy, an analyst at CI Capital, also views the decision as positive for both the construction and steel industries, stating in a note that “companies obtaining the license would benefit from the shortage in supply of steel rebars in the local market.”
He added: “As for construction companies, the new steel capacities would meet their needs to avoid bottlenecks in construction activity.”
For infrastructure projects alone, for example, Minister of Trade and Industry Rachid Mohamed Rachid stated the government has allotted LE 50 billion for the coming year and a half. Such a boost in infrastructure investment will invariably bolster demand for steel.
CI Capital foresees steel rebars demand growing in 2011 by 9.1 percent, which is in sharp contrast to the 14.3 percent decline that took place between 2009 and 2010.
CI Capital also projects production to rise by 13.3 percent over 2011, which will result in the market operating at full capacity.
Demand for steel is divided largely amongst three main categories: private housing, large real estate developments, and infrastructure projects led by the government. Private housing represents 60 percent of steel demand, while large real estate developments and government-led infrastructure projects each account for 20 percent.
