Egypt’s cement sector is scrambling for survival. With supply exceeding demand, a number of cement factories are facing the prospect of closure after they were forced to reduce their production capacity and have endured heavy financial losses.
Egypt’s annual production capacity of cement is estimated at 80 to 85 million tons. In 2019, consumption fell to 44 million tons, down from 50 million in 2017 and resulting in heavy losses for companies.
Five or six cement producers may be forced to shut down by 2021 if the ongoing oversupply crisis does not abate, Lafarge Egypt’s CEO Solomon Baumgartner Aviles said at a Webinar in mid-September.
Cement companies have been “on the edge of precipice”, in the words of Aviles, over the past several years, amid increasing production costs and a prolonged oversupply crisis that has forced them to reduce prices.
The Covid-19 pandemic and the government’s six-month ban on construction permits, issued in May in Cairo, Alexandria, and other cities, had intensified the downward pressure on demand, Aviles said. House construction constitutes 70 per cent of demand for cement in the Egyptian market.
In August, demand retreated by nine per cent, compared to a year earlier, Aviles added, expecting demand to drop by a further 20 per cent during the fourth quarter of the year.
Egypt’s cement factories are now producing at only 50 per cent of capacity, and they need to grow by three per cent annually for 10 years, said Medhat Estifanos, head of the Cement Division at the Egyptian Federation of Industries.
This would be “difficult to see happening,” he said.
Demand for cement fell on an annual basis by three per cent in March and eight per cent in April and to a record low in May, which coincided with the holy month of Ramadan.
Global Data, a company specialising in managing and analysing data, expects the Egyptian construction sector to stabilise over the longer term, however.
It expects the cement sector to bounce back thanks to the national projects being implemented by the government, including the New Administrative Capital. The residential and commercial districts of the New Capital are expected to be finished by the beginning of 2022.
Aviles believes demand for cement will settle at 42 to 43 million tons this year, down by 15 per cent on the past year. Although large projects are being constructed, they constitute only 30 per cent of demand in the market, he said, warning that there would be negative repercussions for cement companies if the crisis was not resolved within the coming three months.
A number of cement companies reported losses during the first half of this year. Suez Cement lost LE575.1 million, up from LE292 million in 2019, recording losses of 97 per cent. Sinai Cement registered losses of LE247.6 million, up from LE187.2 million in 2019, recording a loss of 32 per cent. Torah Portland Cement reported losses of LE461.3 million, up from LE152 million, an increase of 67 per cent.
In recent weeks, the Ministry of Trade and Industry offered solutions to minimise the damage for cement companies, including limiting production to balance supply and demand and decrease the surplus in the market.
But “it will be difficult for cement companies to divide the market up according to different shares, and this goes against the consumer-protection law,” said Estifanos, who believes the right solution would be for the state to take a decision for all companies to abide by.
He stressed that lowering production could be useless as long as supply and demand were not balanced, adding that a ton of cement in competing markets costs $12 less than in Egypt.
Investment in the cement sector, in which 19 companies operate, is estimated at LE250 billion. The country’s cement companies ceased exporting in 2014 due to the energy crisis at the time. Egypt had been considered one of the world’s leading countries in cement exports with 12 million tons annually earlier, with a production capacity of 44 million tons.
The rise in capacity had led to an oversupply in the market, said Estifanos, though this saw record high demand in 2016 at 56 million tons.
Despite the oversupply, businessman Ahmed Abu Hashima, founder of Egyptian Steel, said he would be opening a cement factory in Sohag in Upper Egypt in early 2021.
National Cement and Al-Nahda Cement have shut down their factories in recent months, while Heidelberg Cement announced in June 2019 that it was halting production in Egypt due to heavy financial losses caused by market oversupply resulting in the plummeting of prices.
A year ago, Suez Cement announced the closure of its Torah factory in Helwan due to the deterioration of the sector and company losses.
Estifanos expects more cement companies will close if their financial problems are not resolved. Aviles believes that in order to solve the crisis, the government should lower gas prices commensurate with international ones to enable Egyptian cement companies to compete with their international rivals and export to southern Europe and Africa.
*A version of this article appears in print in the 24 September, 2020 edition of Al-Ahram Weekly