Egypt's top steel producer reveals Q3 net-loss due to curfew in low season

Ahram Online, Monday 10 Feb 2014

Ezz Steel reported a consolidated net loss of LE84.1 million from July to September 2013, reversing a net-profit of LE99 million in previous quarter

Egypt's steel (Photo: Reuters)

Egypt's largest steelmaker Ezz Steel released data on Monday that show sales and profit margins took a hit in the quarter ending September 2013, when Egypt was under a state of emergency and subject to a military curfew.

Ezz Steel reported a consolidated net loss of LE84.1 million excluding minority interest in the third quarter of 2013, compared to a net-profit of LE99 million in the previous quarter.

The curfew imposed since August 2013 exacerbated a slump in sales volumes, "coinciding with both the summer season and the Islamic month of Ramadan - periods historically characterized by slow construction activity and low steel demand," Rita Guindy, industrials analyst at CI Capital, told Ahram Online.

Egypt witnessed a period of political instability after the military-backed ouster of Islamist president Mohamed Morsi following mass popular protests against him in July, prompting an interim government to declare a state of emergency and impose a nationwide night-time curfew from mid-August to mid-November.

Sales volumes of flat steel for the quarter reached only 82 percent of quarterly capacity, while sales volumes of long steel - primarily used in local construction and therefore more vulnerable to domestic supply and demand dynamics, reached 74 percent of capacity.

On the margins side, subsidiary Al Ezz Dekheila, which currently contributes more than 80 percent of Ezz Steel's EBITDA, witnessed some contraction in profit margin due to increase reliance on scrap in its production mix, a more costly raw material than iron ore.

Subsidiaries Ezz Flat Steel (EFS) and Ezz Steel Rebars/Ezz Rolling Mills (ESR/ERM) generated operational losses in the quarter mainly on the back of low operating rates, putting additional pressure on consolidated profit margins, explained Guindy.

Consolidated results for January to September 2013 revealed a net profit of LE218 million, however, reversed net losses of LE46 million for the corresponding nine months in 2012, primarily due to an improvement in gross margins on the back of lower iron ore prices.

"The constant progress in the construction of our DRI plant, coupled with the gradual return of political stability in our country, will allow us, we expect, to further improve the profitability of our business in future reporting periods," said Paul Chekaiban, Chairman and Managing Director of Ezz Steel, in a comment on the results.

The company's direct reduced iron plant is undergoing a vertical expansion due for completion by the end of the current year, which is expected to integrate new production processes to lower costs. 

Ezz Steel saw its share prices drop 0.29 percent at Monday's session of the Egyptian Stock Exchange to close at LE17.04 per share.

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