Egypt lowered gas prices to steel manufacturers by almost 36 percent to $4.5 per million thermal units (mtu) with the hope of cutting the country's import bill, the industry and foreign trade ministry said in a statement on Thursday.
The government had raised gas prices on steel factories to $7 per million thermal units (mtu) from $4 mtu in July 2014 as part of a fiscal reform programme aimed at clenching on a growing budget deficit.
"The government gets to ensure availability of locally produced steel to cater for the upcoming projects, effectively reducing the USD drain by eliminating imports of finished steel and ensuring imports of raw materials are more in the form of the relatively cheaper ore rather than scrap or billets," read a research note by Cairo-based investment bank Beltone Financial.
The decision is estimated to save the country $1.1 billion in foreign currency currently spent on importing billet (steel raw material) and raise production capacity to increase exports by $600 million, said the ministry in the statement.
The leading producers have minimised their production capacity by around 40 percent to avoid losses, given the low demand last year, Moahmed Hanfy, the director of Cairo chamber of metallurgical at the Egyptian industrial federation, told Ahram Online in January.
The country’s largest steel producer, Ezz Steel, that controls more than 50-percent of the steel market, had suffered EGP 509 million in net losses in the first nine months of 2015, up from EGP 461 million in the same period a year prior.
Ezz steel share price surged 20.09 percent to close at EGP 8.13 per share following the government decision.
The new subsidised price will cost the state budget EGP 1.2 billion, according to the ministry statement.
Egypt's budget deficit is projected to reach 11.5 percent on GDP by the end of the current fiscal year on 30 June.