While the outlook for the Egyptian steel industry remains unfavorable in the short-term, a young population, new mortgage laws and a government commitment to new infrastructure projects look set to give the sector a boost over the long-term, according to a special report issued by Fitch Ratings and its Cairo-based subsidiary Nile Rating.
The outlook for the steel industry is particularly dependent on the construction, infrastructure, and tourism sectors, which are the main drivers of the Egyptian economy. Fitch believes that the industry's short-term outlook remains unfavorable, given the state of both the business and economic environment.
However, population growth and demographic trends, in addition to the industrial transformation of Egypt are likely to provide good future prospects for the industry. It should be noted that around 60 percent of the population in Egypt is below 25 years of age. As the population ages and children move away from home there will be increased demand for housing and the development of new towns and communities, forecasts Fitch.
In addition, the ratification of a new mortgage law, which provides security over the land, is likely to boost demand for housing and hence demand for steel. Egypt has also begun to move towards a more advanced level of industrialization. This trend is likely to boost the demand for flat steel over the long-term. Furthermore, the government's commitment to new infrastructure projects at least until 2017 also implies rising demand for steel.
The Egyptian steel industry is considered relatively small on a global scale. It manufactures both flat and long steel products but relies heavily on long steel products; mainly rebars, which account for around 95 percent of all steel produced in Egypt, which stood at 5.9 tons in 2002. The industry is highly concentrated with the top three companies accounting for nearly 79.2 percent of the total.
Over the past three years, invariably all steel players in Egypt have experienced increasing financial pressure with high and rising leverage combined with deteriorating, negative profitability and growing refinancing risk. The industry has faced one of the most challenging operating and business environments in Egypt.
A series of local currency devaluations and the adoption of the free float exchange regime in the first quarter of 2003 which ended up with 36 percent loss in value of the local currency against the US dollar has contributed to increasing costs and also put more pressures on the Egyptian steel players.
Increased production capacity was also added last year further aggravating the already existing excess supply. Despite these unfavourable business environments, the Egyptian authorities are very supportive of local producers in taking action against "dumping" by foreign suppliers and imposing high import tariffs. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
