Showing a 20% growth in demand last year – higher than China’s 16% growth and India’s projected 11% increase – the Egyptian cement industry continues to surprise. Even taking a more measured view, Egypt’s annual domestic cement growth of just over 14% for the past five years signifies a well-founded industrial base, set around favourable demographics (some 83 million people) and high activity levels in government-supported infrastructure, local construction projects and strong new housing demand.
Speaking at this week’s successful Cemtech Middle East conference in Dubai, before an audience of some 260 industry professionals, Mahmoud Soheim, Global Investment House (Egypt) commented that cement consumption in 2009 was noted at 46.1Mt, while production from the 13 existing players in this vibrant market reached 46.8Mt. More importantly, capacity utilisation topped the 98% level pushing the government to announce a spate of new licences, the latest – reported earlier this year – involving eight new 1.5Mta plants, bringing the total of both new and expansion projects announced since 2007 to 15 separate projects of about 22Mta, 16Mta of which is expected to be in service by late-2011.
Today, eight of Egypt’s 13 production companies are controlled by multinationals, with Italcementi gaining a 28% market share via its three facilities, while Lafarge Egypt has a current 21% market share. Four private sector companies: Sinai, Misr Beni Suef, Misr Qena, South Valley and one public sector company – National Cement complete the present line-up.
Although Egypt has been a major exporter in the past – as much as 12Mt back in 2004 – a ban on exports, intermittent since 2008, but now fixed until October 2010 at the earliest, highlights the current tight market situation. In fact, Egypt’s rising dependence on cement and clinker imports, with 1.3Mt of cement imported in 2009 and likely to rise even higher in 2010 before the expected new capacity comes into full service by 2011, represents a major shift in the supply economics. The move by the government to reduce import clearance times from 30 days to just three days has also been a boon to importers and local traders.
Local cement prices have been increasing since the beginning of 2008 on the back of fast-rising demand, with the average retail price of cement in Greater Cairo reaching around US$107/t in February 2009 and up from US$71 at the beginning of 2008. Not surprisingly, the Egyptian government has re-introduced some pricing controls to stop profiteering, although producers have also faced some significant cost increases, especially following the earlier liberalisation of local energy prices which helped to push up the cash cost of cement production up from a low US$23/t in 2007 to over US$31/t in 2008, a rise of 35 per cent over this period. Currently, such average cash costs are reportedly to now be up to the mid-to-high US$30s.
Looking ahead, the Global Investment House believes that local cement demand will grow by a further 10% in 2010, although local prices will stabilise following government intervention, coupled with the continued export ban. However despite the current round of new building, cement capacity levels could once again match demand by 2013, suggesting that even more licences will have to be issued for additional cement capacity, sooner rather than later.