Ezz Dekheila's profits fall on energy shortage.

Waad Ahmed, Tuesday 28 Oct 2014

Ezz dekheila profits dipped following a month and half long suspension of gas supplies

Ezz Steel
A worker operates a furnace at a factory belonging to Ezz Steel, Egypt's largest steel producer, at an industrial complex in Sadat City, 94 km (58 miles) north of Cairo (Photo: Reuters)

Egyptian steel manufacturer, Ezz Dekheila, announced a 94 percent fall in profits for the third quarter on the back of energy shortages and price hikes.

Ezz Dekheila steel posted a net profit of LE55.6 million in the third quarter ending September, compared to LE962 million in the same period last year, the company said in a statement to Egypt's stock exchange on Tuesday.

Revenues for Egypt's largest steel manufacturer hit LE9.5 billion, a fall of almost 8 percent from last year.

The company had to import scrap, an essential raw material in manufacturing steel, to compensate for a complete stop to the production of "direct reduced iron" manufacturing for a month and a half due to the suspension of gas supplies, Ghada Alaa, steel analyst at Beltone Financial, said in a phone interview. 

Steel manufacturers use natural gas to reduce iron ore before treating it to manufacture steel.

Egypt has been suffering from shortages in energy and rising consumption over the past few years; the issue is most apparent in the summer months which coincide with the third quarter.

"Profitability in the third quarter was also squeezed due to hikes in the price of natural gas, electricity and taxes," added Alaa. 

Following the election of President Abdel-Fattah El-Sisi in July, his government took the bold decision to cut energy subsidies as part of its wider structural reforms. Gas prices to industries were raised by up to 75 percent in July while electricity fees rose by 30 percent and taxes increased to 30 percent from 25 percent, Alaa said.

Despite the unusual rise in expenses, Ezz Dekheila was unable to raise prices due to competition with imported cheap steel from Turkey and China, Alaa said.

Earlier this month, the government imposed a temporary 7.3 percent tariff on steel imports in response to a petition filed by domestic steel producers in June which resulted in a pending government probe.

Egypt's steel imports during the third quarter were 250,000 tonnes, Mohamed Hanafi, director of the metallurgical industry's chamber of commerce, told Ahram Online on 15 October.

"The third quarter is usually the weakest in the year, as the construction sector slows during Ramadan and Eid holiday," said Alaa.

Some 60 percent of steel demand comes from the government for infrastructure projects which are expected to grow as it carries on with plans to revive the economy, Hanafy said.

Egypt is targeting a growth rate of 3.5 percent in the current fiscal year compared to 2.2 percent achieved in the fiscal year ending in June.

Ezz Dekheila share price didn't change in Tuesday's trading session and remained LE620 per share.

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