The Egyptian minister of Trade and Industry has announced a ceiling ex-works price for domestic bagged cement at EGP290/t (EUR40/t). This comes just after the anti-trust investigation launched in July following the recent surge in cement prices and the recent consolidation in the Egyptian cement industry – reports Arnaud Pinatel from analysts Exane BNP.
The ceiling is apparently below recent market prices, estimated at EGP320/t. Cement demand in Egypt is well oriented with a 15.1% increase in volume reported at the end of May 2006. We note that Lafarge was quoting EUR44/t at the end of March 2006.
In the short term this is not good news for cement producers exposed to Egypt. However, we do not believe the impact will be too dramatic, for two main reasons:
− As Egypt is a bag market, where final clients are individuals, the decision to cap prices could also help retail demand to grow (the minister has also announced that the retail price by the distributors will be capped at EGP330/t).
− Egyptian margins have surged from 18% in H1 05 to 50% in H1 06 according to Suez Cement’s half-year release. The profitability of the Egyptian cement market should remain high even after the pricing controls. We also understand that the government is developing major projects and public works. It is not unreasonable to believe that, as a potential large buyer of cement, the government has an interest in controlling prices, especially since the recent privatisation of the industry (the sale of Suez Cement, the biggest player in Egypt, to Italcementi removed the governments capacity to act directly on cement prices) - Pinatel concludes.