Countries across the world including Egypt are trying to absorb the economic and other repercussions of the Russia-Ukraine war. The crisis is also not cushioned by the global inflationary wave that is expected to affect every sector and citizen.
The current hikes in energy prices have taken their toll on Egypt’s construction sector, but luckily the domestic market is self-sufficient in steel and cement and there is a good reserve of ceramics, marble, and porcelain, said Hisham Yousri, secretary-general of the Egyptian Federation for Construction and Building Contractors.
However, Mohamed Lokma, a member of the board, believes that the crisis in the construction sector will deepen if the Ukrainian conflict drags on.
The rise in energy prices will increase freight costs, and the Ukraine conflict will result in a surge in the cost of securing maritime transport, and thus will increase the cost of imported iron ore, Lokma said.
Energy prices represent, directly and indirectly, six per cent of the cost of transporting raw materials and the fuel to operate machinery in the construction sector. The current global crises may increase this figure to 17 per cent, Lokma added.
It is also expected that steel prices will go up by eight per cent. “The longer the war in Ukraine lasts, the higher the expense of hydraulics, civil defence, and industrial security will become. These things are imported for infrastructure projects, such as power and water stations, waste treatment, and railway lines,” Lokma noted.
He warned that if oil prices continue to rise globally, they will negatively affect local prices and put more weight on the government’s shoulders.
The government should talk with industrialists, importers, and contractors to agree on ways to deal with the global inflationary wave and supply chain disruptions in the event the Ukraine crisis runs on, Lokma suggested.
Egypt is self-sufficient in steel, but the government should discuss with steel manufacturers the means to achieve a strategic stock that will enable it to manoeuvre if prices increase further, he said.
Similar talks should be held with cement producers. Egypt produces enough cement for its own consumption and exports the rest, with Lokma asking whether it should increase local cement production and decrease exported amounts.
Ahmed Al-Zeini, head of the Building Materials Division at the Federation of Egyptian Chambers of Commerce, agreed that the state needs to coordinate with producers and importers on steel and cement. The prices of both had already increased by six per cent before the Ukraine war, he said, in moves preempted by manufacturers in case the war drags on until the second quarter of 2022.
One of the factors that could affect the price of steel is the reduced availability and higher prices of iron ore pellets, essential for the production of steel, Al-Zeini said. Russia and Ukraine are important producers of this raw material.
Comparing local and international prices, Al-Zeini criticised the dumping fees imposed on imported steel, which in essence are meant to shield local production. Such fees should be reviewed at the present time due to the rise in steel prices domestically to more than $1,000 per ton, he said, when Turkish and Ukrainian steel was sold for less than $800 before the outbreak of the war.
He wondered why the government and private-sector companies should shoulder the difference in price.
The same thing goes for cement, Al-Zeini added. Cement prices went up in Egypt from LE900 to LE1,500 before the Ukraine conflict without a reasonable excuse, while internationally cement was sold for the equivalent of LE700.
Al-Zeini said the 50 per cent increase in cement prices needed to be reviewed to avoid supply shortages, especially keeping in mind Egypt’s high consumption of building materials in national projects such as railways, infrastructure in villages, housing, and new cities.
“The state supports steel and cement manufacturers by providing them with subsidised energy. The producers should meet the demands of the local market just as the state supports them,” Al-Zeini said.
Given that there are Egyptian companies that export cement at globally competitive prices, Al-Zeini said that the building materials market should be thoroughly reviewed in the current exceptional conditions.
*A version of this article appears in print in the 10 March, 2022 edition of Al-Ahram Weekly.