Cement production to be reduced

Ahmed Kotb , Tuesday 13 Jul 2021

Ahmed Kotb reports on government plans to reduce cement production and how these might affect the market


In a move aimed at limiting losses due to an oversupply of local cement production, the Egyptian Competition Authority (ECA) has decided that all cement companies working in Egypt will reduce production starting on 15 July.

Decision 56/2021 means that cement producers will introduce a 10.69 per cent cut in their production in addition to a 2.81 per cent reduction per production line. It gives room for further cuts at older factories. The reductions will last for a year, according to the decision.

The move was made in the wake of a proposal submitted by 23 industry players to preserve competition in the market and stop the losses they have been shouldering for the last three years.

The Cement Division of the Federation of Egyptian Industries has announced its support for the decision. According to a statement, the crisis that the industry is currently facing, the need to protect the industry, and the interests of consumers all explain the decision made by the ECA with a view to preserving competition in the marketplace and rationalising cement production.

The production capacity of Egyptian cement producers has reached about 85 million tons per year. The opening of new cement factories and production lines in conjunction with a drop in sales to about 50 million tons have caused a crisis in the market, and the repercussions of the Covid-19 and consequent weaker demand have added insult to injury.

The Ministry of Trade and Industry has been in talks with cement companies operating in the local market over the last few months to reach an agreement to reduce their production, as part of a solution to the current losses and to help the sector cope with the oversupply that it has been suffering from.

Medhat Stefanos, head of the Cement Division at the Federation of Egyptian Industries, praised the decision, saying that the production of cement should be based on consumption. “Cement is not a commodity that can be stored for a long time, and Egypt has been self-sufficient in cement for many years. Further excess supply would have meant that the market would have kept deteriorating until the factories were forced to close,” he said.

He added that the decision to reduce production at the 23 cement companies had come with the aim of protecting them from the risks of bankruptcy and closure.

He pointed out that 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 overall value of investment in the Egyptian cement sector is about LE250 billion.

However, Ahmed Al-Zeini, head of the Building Materials Division at the Federation of Egyptian Chambers of Commerce, said that the decision to cut cement production had already led to an increase in market prices.

Cement prices have increased by LE50 over the past two days for the production of some companies, he said. The average price of a ton of cement currently ranges between LE900 and LE1,000.

“Although the buying and selling of cement is currently slow, I expect more price increases to come,” Al-Zeini said, adding that the Building Materials Division had held a meeting last Thursday to discuss the decision and its effects on the market.

It wanted to see cement companies steady any increases in prices and to monitor them carefully. “It asked for the market to be studied on a monthly basis, with special attention being paid to the impact of this decision on prices,” Al-Zeini said.

A report on demand and supply and the prices of cement is to be submitted to the ECA every two weeks to protect the market from price hikes, he added.

The Arab Cement Company said in a statement to the stock exchange that its profits would likely improve in the light of the expected rise in cement prices in the coming period. It expects its production to decrease by 26 per cent in the wake of the decision.

 *A version of this article appears in print in the 15 July, 2021 edition of Al-Ahram Weekly.

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