Typically, Egyptian
industrial sectors are dominated by a handful of public and semi-private
companies locked in a sluggish struggle to come out on top if and when they are
fully exposed to the vicissitudes of the free market and foreign competition.
Several smaller ventures may act as window-dressing to give the impression of
competition, but by and large, slow responses to changes in the economy and an
insular view of the market are the rule.
In many ways, then, the steel sector is atypical. After private juggernaut Ezz
Steel Rebars (ESR) acquired a 28 percent share of government controlled
Alexandria National Iron and Steel Company (ANSDK), the two companies
consolidated their marketing operations under the name Ezz-Dekheila Steel (EZDK),
of which Ahmed Ezz was appointed chairman in March 2000. The marketing alliance
of ESR and EZDK also goes by the name Ezz-Dekheila (EZDK). EZDK has maintained a
dominant position, and the company now controls around 54 percent of the total
market capacity and 67 percent of the market share. Other significant private
producers are the Kouta Steel Group, Suez Steel, Aswan for Iron, and the Arab
Steel Factory, which account for around 26 percent of the market. Public sector
companies such as the famously bloated Helwan Steel make up about 7 percent of
the market. Thus, it is fair to say that the steel sector is dominated by one
overridingly private concern, with some private competition. State owned
enterprises, while employing a large chunk of the sector’s workers, have become
even more untenable than in other industries.
The Egyptian steel sector relies heavily on rebar, which account for around four
fifths of all steel sales in Egypt. Because this type of steel is used mainly in
construction projects, the recession and accompanying downturn in the real
estate market has resulted in weak demand. Total domestic sales in 2000 stood at
3.22 million tons, expected to rise only slightly to 3.28 million tons by the
end of 2001. Because of low demand, even private sector steel companies in Egypt
are hamstrung by low capacity utilization in reconditioned plants. Further, only
EZDK, which runs fully integrated plants, has serious international
certification of its products. Since a large portion of the steel produced in
Egypt is not up to international standards, imports have traditionally played an
important in the domestic market. According to the US Foreign Commercial
Service, such imports, mainly from Libya, Saudi Arabia, and Eastern Europe, rose
steadily to account for 21 percent of total demand in 1998. Though steel from
Libya is of poor quality and poses little threat to Egyptian producers, steel
from Saudi Arabia, especially, has concerned protectionists in the Egyptian
government. Fearing massive growth in demand for below-market-price Saudi steel,
Egypt several years ago did not renew the free trade agreement with Saudi Arabia
that granted duty-free access to the Egyptian market. Indeed, steel imports have
decreased sharply from 594,000 tons in 1998 to 260,000 in 2001. Industry sources
have indicated that this year’s dramatic drop in imports is due in part to a
significant increase in production capacity at Egyptian plants, but added that
weak demand is the most important factor for lower import figures.
For its part, Egypt exports very little steel. EZDK would like to see this
change, and in July 2000, the company’s European marketing branch was
incorporated in Duisburg, Germany. As the major steel producer in the Middle
East, EZDK recognizes the value of deriving a significant amount of its earnings
from sales abroad, especially in European and Asian markets where demand is more
constant. In 2002, EZDK projects exports of around 800,000 tons of flat and long
steel, expected to bring in around US $300 million. The company also expects
this figure to rise to US $400 million in 2003.
The same shrinkage in the real estate market that has ended the freewheeling
heyday of the cement sector has also had serious ramifications for steel
producers. Starting from negative growth in the early 1990s, steel production
growth increased to 8 percent in 1998, while sales climbed at an even higher
rate. After construction in Egypt took a nosedive at the turn of the century,
production growth leveled out and, while capacity has increased recently, this
has not yet been reflected in actual production levels because of low demand.
Most experts believe that growth will shrink slowly through about 2003. For now,
sales are holding steady, and current rebar sales stand at around 250,000 tons
per month, according to the Ministry of Public Enterprise.
Reliable sources in the private sector put domestic production capacity at 4.6
million tons in 2000 and 5.4 million tons in 2001. Actual production, however,
has hovered at 3.2 million tons and 3.4 million tons for the same years. Thus,
despite a large increase in capacity, these figures reflect the unfortunate
reality that steel producers are still losing over 30 percent of their potential
production. A report by the Egyptian State Information Service (SIS) puts much
of the blame for this phenomenon on a weak industrial infrastructure, which
suffers from frequent power outages. However, sources in the private sector
point out that with several brand new production facilities around Egypt, the
problem is not infrastructure, but, once again, weak demand. Foreign competition
brought on by Egypt’s entrance into the WTO will make a tight market tighter,
and will force all of Egypt’s steel producers to get their products certified to
international standards or lose much of their business. Nevertheless, the
problem of increasing production to keep up with higher demand, when it
recovers, is still a major concern. As Egypt’s steel companies themselves
acknowledge, the way forward is still to get their plants up to date
technologically.
One way of doing this is to build large production facilities in new industrial
zones like the one being set up around Suez. The Ezz Group is taking advantage
of the new industrial zone there to attract foreign investors, and has worked
with consultants such as Booz Allen & Hamilton and engineers WS Atkins to design
facilities in Suez that are modern, efficient, and attractive to foreign
capital. Now undergoing a three month test run, the new US $700 million Ezz Flat
Steel (EFS) plant will be capable of producing 1.2 million tons of hot rolled
coils annually, using state-of-the-art technology. Italian steel giant Danieli
has an equity stake in the plant, and is acting as a technology supplier.
Easy and cheap access to power sources and ports and an advanced industrial
infrastructure should help companies setting up plants in Suez to keep up with
demand towards the end of this decade, when it is expected to be healthy again.
EZDK’s plant in El Dekheila, completed by SMS Demag AG in 2000, and EFS’s new
plant in Suez show that the sector is keenly aware of the need to modernize
production.
There are also signs that increased local private competition is having a
stabilizing effect on the Egyptian steel market. EZDK’s market share grew
immensely from 53 percent in 1998 to 60 percent in 1999, and up to 70 percent in
2000. However, in 2001 it has shrunk back slightly to 67 percent. According to a
June report by EFG Hermes, EZDK has faced lower cash flow expectations recently,
and the report added that “an unclear strategy has caused analysts to predict a
string of losses in the bottom line over the next few years that could consume
much of the company’s net worth”. Sources in EZDK, however, say that such an
analysis is shortsighted, adding that the company’s strategy of investing
heavily in the plant at Dekheila to produce steel for export is both clear and
very promising. Furthermore, this may be the only way to truly protect the
company from the restrictions of the Egyptian market and ensure long-term
growth.
In any case, it seems likely that private sector companies will continue to
dominate Egypt’s steel sector. If demand recovers and local companies can then
live up to their capacity figures while keeping prices down, they could edge out
imports permanently and maintain a profitable market balance within five to
eight years. The effect that WTO membership and the EU partnership agreement
will have on the Egyptian steel sector, however, is unknown at this point.
Exports of Egyptian steel could increase steadily as their access to European
markets grows. Increased foreign investment would lead, and already has led, to
more efficient production. On the other hand, if reasonably priced,
high-standard imports flood the market before the bulk of Egyptian companies
have the chance to build up their operations and get their products certified
during these crucial next few years, it could prove far more difficult for
companies besides EZDK to remain competitive.
2005 - Egypt Steel Industry Overview
2004
- EZZ DK Total Production, Sales & Exports of Long & Flat Products
2003 - 2004 - Egypt Steel Industry Overview
2002 - El-Dikheila Steel Plant Expansion, Egypt
2002
- EZDK
Company Profile
2002 - Total Imports of Flat Steel Products to Egypt
2001 - Egypt Steel Industry Overview