Last Update 22:35
Thursday, 05 August 2021

Solving Egypt's cement crisis

Steps are being taken to deal with problems of oversupply in the cement industry

Ahmed Kotb , Thursday 27 May 2021
Solving the cement crisis
Solving the cement crisis
Share/Bookmark
Share/Bookmark

The cement industry in Egypt has not been seeing its best days. Over recent years, it has suffered losses of more than LE1 billion due to an oversupply of production. Egypt’s production capacity reached 83 million tons in 2020, while domestic consumption declined to less than 50 million tons.

Such figures have prompted some companies to stop some production lines and to cut their losses. But the industry is now hoping for a boost following President Abdel-Fattah Al-Sisi’s decision to support Egypt’s heavy industries, including cement.

Last month, Al-Sisi directed the government to continue efforts towards the localisation of industry and to provide a supportive environment for the heavy industries, especially cement and steel.

He praised the sector’s role in driving the national economy forward, with heavy industry being at the heart of the country’s development efforts and an essential component of ongoing urban development projects.

The Ministry of Trade and Industry has been in talks with cement companies operating in the local market to reach an agreement to reduce their production, as part of a solution to their losses.

The agreement aims to set a ceiling on production by amending certain clauses in the companies’ licenses to help the sector cope with the oversupply that it has been suffering from for a few years.

 A source in a cement company said that the government suggested that cement companies reduce production by about 10 per cent, and that discussions revolved around the willingness to increase production at any time in the event of high demand to meet the market needs.

The source added that any reduction in production would be a temporary decision to preserve the financial performance of cement companies and to maintain current prices of cement which ranges between LE800 and LE950 per ton.

However, Ahmed Al-Zeini, head of the Building Materials Division at the Federation of Chambers of Commerce, believes that setting a ceiling on production might lead to higher prices in the local market.

“Demand for cement recorded an overall decline of up to 30 per cent during the last four years, prompting companies to reduce production and prices to maintain market share,” Al-Zeini said, adding that exporting the excess might be the best solution.

However, he added that many manufacturers were reluctant to export because global prices were not attractive. The government should compel factories to export at least five per cent of their total production to limit excess supply, he said.

Al-Zeini said that President Al-Sisi’s decision to increase efforts towards localising the cement industry in Egypt were expected to help protect the industry and support the national economy.

He said that national projects from the New Administrative Capital to the new city of Al-Alamein and others have absorbed nearly 50 million tons of cement production, or about 70 per cent of total production each year.

He expected an increase in sales during the coming period, with the expected application of the decision to resume construction work in some governorates.

The government announced the suspension of building permits in major cities and provincial capitals in May 2020, as well as a complete cessation of building permits in four governorates. This has caused stagnation in the building materials market.

Mahmoud Shaarawi, the minister of local development, announced lately the start of the experimental application of a new system of construction permits and building and planning requirements in 27 cities in Egyptian governorates chosen on 1 May for a period of two months.

He said that the new system would be applied to the rest of Egyptian cities from 1 July.

Medhat Stefanos, head of the Cement Division at the Federation of Egyptian Industries, said the state’s entry into the scene would help to maximise profits, stabilise prices, and better utilise the capabilities of the industry.

It was in line with the state’s vision to render building materials one of the major exporting sectors, he added.

He stressed that the sector needed the state to help companies export their products, especially given the increase in local supply, as there were many factors that limit the competitiveness of Egyptian products compared to those of competing countries.

These factors include the high cost of production, especially energy, and the cost of logistics and transportation at Egyptian ports, Stefanos said, adding they could be overcome with the government support.

Egypt’s cement exports increased during January and February this year to record $36 million, compared to $26 million during the same two months of 2020, or growth of 38 per cent, according to the Building Materials Export Council.

The average price of a ton of cement ranges from LE800 to LE900.

Stefanos said that there are 19 cement companies operating in Egypt. The production capacity of state-owned factories is about 18.5 million tons on 10 production lines, while the private sector is estimated to have a capacity of 64 million tons with 37 production lines. The volume of investment in the Egyptian cement sector is about LE250 billion.

Egypt was expecting new investments in the cement sector last year through offering new licenses for the construction of cement factories, but the sector’s recession amid large surplus took their toll.

According to analytical statement of the draft budget for Egypt’s fiscal year 2020/2021, the government was targeting revenues of LE620 million from offering new licenses for the production of iron and cement.

Official reports indicate that Egypt ranks 14th in the world among cement-producing countries, with a total production capacity of more than 82 million tons per year and average sales of about 54 million tons per year.

*A version of this article appears in print in the 27 May, 2021 edition of Al-Ahram Weekly

 

Short link:

 

Latest

© 2010 Ahram Online.