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Egypt’s heavy industries: Seeking a competitive edge

Egypt’s heavy industries are demanding further cuts in energy prices in order to improve their competitiveness

Safeya Mounir , Friday 11 Sep 2020
Seeking a competitive edge
Natural gas makes up around 40 per cent of the final cost of fertilisers
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Egypt’s Chemical and Fertilisers Export Council filed a request in late August to the Ministry of Trade and Industry asking for a reduction of gas prices to $3.5 per million British thermal units (MBTU).

The cost of gas makes up about 40 per cent of the price of the industry’s products, said Khaled Abul-Makarem, chair of the council.

While gas prices vary for different industries, Egypt’s heavy industries suffer from a high price of gas, reaching $4.5 MBTU, when the average international price is $2.5 MBTU.

Abul-Makarem wants to see Egyptian industrialists pay the international price for gas. The government cut gas prices for industry in March as part of a stimulus package to support the industrial sector to $4.5 MBTU, down from $6 MBTU.

The current price in Egypt is more than double the international price that foreign competitors pay, said OCI NV, a gas production and distribution company, in July. It said that Egypt’s high gas prices could drive it out of the market, reducing production and possibly having to close its fertiliser plants in the country.

Over the past six months, international gas prices have fluctuated, registering $1.38 MBTU in June and $2.66 MBTU in August before stabilising at $2.52 MBTU. The government’s energy pricing committee could cut gas prices by 50 to 80 cents per MBTU this month, media reports have indicated.

In October, Prime Minister Mustafa Madbouli ordered that a committee be formed to review energy prices every six months. The committee’s next meeting is scheduled for September.

Parliament’s Industry Committee headed by MP Farag Amer has requested the government to lower energy prices for factories, saying that this would help Egyptian products to compete with those on international markets.

High gas prices have already affected chemical exports and resulted in the loss of key markets such as the European Union, though directing chemical exports to African markets has helped to cushion the reduction in exports by three to 10 per cent, Abul-Makarem said.

Reducing gas prices will increase the competitive edge of Egyptian products in international markets, such as Europe, Turkey, India, China, and a number of Arab countries.

Egypt’s chemical and fertiliser exports fell by 16.2 per cent during the first half of the current fiscal year, recording around $2.4 billion, down from around $2.9 billion, according to the General Organisation for Export and Import Control.

Mohamed Al-Marakbi, the owner of a steel factory in Egypt, believes it is only fair that Egyptian producers pay the international price for gas, as had been the case earlier. He said that gas represented 40 per cent of the cost of the first phase of steelmaking, and was then lowered to three per cent in subsequent phases.

In Turkey, for example, the cost of transforming iron ore to pellets is much lower than in Egypt, he said, adding that Egyptian steel factories have halted their exports over the past two years.

Gas is a main input for Egyptian steelmaking since the country does not produce iron ore.

Al-Marakbi said that electricity and gas prices should be lowered in order to raise the competitive edge of Egyptian products. Electricity prices were “exorbitant” for Egyptian producers, he said, adding that they were set at 2.5 cents (45 piastres) in the European Union and LE1.1 in Egypt.

 

*A version of this article appears in print in the 10 September, 2020 edition of Al-Ahram Weekly

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